UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-02383
ALLIANCEBERNSTEIN BOND FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Joseph J. Mantineo
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 221-5672
Date of fiscal year end: October 31, 2012
Date of reporting period: October 31, 2012
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT
AllianceBernstein Bond Fund Intermediate Bond Portfolio
October 31, 2012
Annual Report
Investment Products Offered
• Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s website at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 18, 2012
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Bond Fund Intermediate Bond Portfolio (the “Portfolio”) for the annual reporting period ended October 31, 2012.
Investment Objective and Policies
The Portfolio’s investment objective is to generate income and price appreciation without assuming what AllianceBernstein L.P. (the “Adviser”) considers undue risk.
The Portfolio invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Portfolio expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term and relatively attractive yields that do not involve undue risk of loss of capital. The Portfolio expects to invest in fixed-income securities with a dollar-weighted average maturity of generally between three to ten years and an average duration of three to six years. The Portfolio may invest up to 25% of its net assets in below investment-grade bonds. The Portfolio may use leverage for investment purposes.
The Portfolio may invest without limit in U.S. dollar-denominated foreign fixed-income securities and may invest up to 25% of its assets in non-U.S. dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed and emerging market debt securities. The Portfolio may invest in mortgage-related and other asset-backed securities, loan participations, inflation-protected
securities, structured securities, variable, floating, and inverse floating rate instruments and preferred stock, and may use other investment techniques. The Portfolio intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Portfolio may invest, without limit, in derivatives, such as options, futures, forwards or swaps.
Investment Results
The table on page 5 shows the Portfolio’s performance compared with its benchmark, the Barclays Capital (“BC”) U.S. Aggregate Bond Index for the six- and 12-month periods ended October 31, 2012.
The Portfolio outperformed its benchmark for both periods, before sales charges, driven by positive sector, security and yield curve positioning. Within the Portfolio’s sector positioning, an underweight to Treasuries and overweights to commercial mortgage-backed securities (“CMBS”) and investment-grade corporates contributed positively for both periods. During both periods, non-government securities outperformed as investors became less risk-averse. An allocation to high yield corporates, along with an underweight to agency mortgages, was also a modest positive contributor.
Security selection within the Portfolio’s corporate holdings was a significant positive for both periods, helped by an overweight in financials. Yield curve positioning for both periods was also positive as an overweight in the 10-year area of the yield curve, where yields declined
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 1 |
most, was beneficial. Overall currency positioning was a detractor for both periods.
During both periods, treasury futures and interest rate swaps were utilized in order to manage both the duration and yield curve positioning, which had a positive impact on performance. As part of the Portfolio’s credit position, credit default swaps were utilized as both a hedge against bonds held in the Portfolio and as a substitute for corporate bonds. For the six-month period, the Portfolio’s credit default positions contributed positively; there was no meaningful impact for the 12-month period. The Portfolio also utilized currency forwards during the six- and 12-month periods for hedging and investment purposes, which detracted. Currency swaps were utilized for hedging and investment purposes, which had an immaterial impact during both periods.
Market Review and Investment Strategy
Volatility continued throughout the 12-month period ended October 31, 2012, as global markets remained highly correlated with ongoing European debt sentiment and perceptions of the overall health of the global economy. The swings between “risk on” and “risk off” throughout the period reflected uncertainty created by the protracted sovereign debt crisis in Europe, a looming fiscal policy crisis in the U.S., and questions as to whether emerging market economies, such as China and Brazil, were heading for a
hard or soft landing from higher rates of growth.
Investor confidence improved in the first quarter of 2012, after the European Central Bank (“ECB”) took decisive moves to stem the euro area crisis and after signs of improving economic momentum, particularly in the U.S., buoyed markets. In the second quarter of 2012, however, the pendulum swung back to “risk off” as the European debt crisis intensified, growth in China moderated and the pace of U.S. economic growth showed signs of slowing. Government yields fell significantly, with U.S. Treasury and German bund yields setting new record lows.
Toward the end of the 12-month period, global risk aversion eased once again, prompted by positive central bank policy initiatives. The ECB announced a bond purchase program to support financial market stability in the euro area, while yields on 10-year European government bonds, including those of countries at the center of the sovereign debt crisis, fell. In the U.S., a third round of quantitative easing by the Federal Reserve was also positive for broad market sentiment. Officials indicated that the current low interest rate regime would likely last until the middle of 2015; previously, it had been expected to run until the end of 2014. For the 12-month period, government securities generally underperformed risk assets, which gained in value, and corporate bond spreads narrowed.
2 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
DISCLOSURES AND RISKS
Benchmark Disclosure
The unmanaged BC U.S. Aggregate Bond Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The BC U.S. Aggregate Bond Index represents the performance of securities within the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities, and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment-Grade Securities: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign (Non-U.S.) Risk: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Prepayment Risk: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of
(Disclosures, Risks and Note about Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 3 |
Disclosures and Risks
DISCLOSURES AND RISKS
(continued from previous page)
principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effects of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Derivatives Risk: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Portfolio’s prospectus.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com.
All fees and expenses related to the operation of the Portfolio have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; the applicable contingent deferred sales charge for Class B shares (3% year 1, 2% year 2, 1% year 3); a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
4 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Disclosures and Risks
HISTORICAL PERFORMANCE
THE PORTFOLIO VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2012 | NAV Returns | |||||||||
6 Months | 12 Months | |||||||||
AllianceBernstein Bond Fund Intermediate Bond Portfolio^ | ||||||||||
Class A | 3.72% | 6.27% | ||||||||
| ||||||||||
Class B* | 3.44% | 5.56% | ||||||||
| ||||||||||
Class C | 3.36% | 5.55% | ||||||||
| ||||||||||
Advisor Class† | 3.96% | 6.59% | ||||||||
| ||||||||||
Class R† | 3.61% | 6.05% | ||||||||
| ||||||||||
Class K† | 3.74% | 6.32% | ||||||||
| ||||||||||
Class I† | 3.96% | 6.58% | ||||||||
| ||||||||||
BC U.S. Aggregate Bond Index | 2.75% | 5.25% | ||||||||
| ||||||||||
^ Includes the Adviser’s reimbursement in respect to the Lehman Bankruptcy Claim, which contributed to the Portfolio’s performance by 0.07% for the 12-month period ended October 31, 2012.
* Effective January 31, 2009, Class B shares are no longer available for purchase to new investors. Please see Note A for additional information.
† Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. | ||||||||||
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 5 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
GROWTH OF A $10,000 INVESTMENT IN THE PORTFOLIO 10/31/02 TO 10/31/12
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Intermediate Bond Portfolio Class A shares (from 10/31/02 to 10/31/12) as compared to the performance of the Portfolio’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Portfolio and assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2012 | ||||||||||||
NAV Returns | SEC Returns | SEC Yields* | ||||||||||
Class A Shares | 1.28 | % | ||||||||||
1 Year | 6.27 | % | 1.76 | % | ||||||||
5 Years | 6.33 | % | 5.42 | % | ||||||||
10 Years | 5.09 | % | 4.64 | % | ||||||||
Class B Shares | 0.60 | % | ||||||||||
1 Year | 5.56 | % | 2.56 | % | ||||||||
5 Years | 5.65 | % | 5.65 | % | ||||||||
10 Years(a) | 4.71 | % | 4.71 | % | ||||||||
Class C Shares | 0.64 | % | ||||||||||
1 Year | 5.55 | % | 4.55 | % | ||||||||
5 Years | 5.61 | % | 5.61 | % | ||||||||
10 Years | 4.38 | % | 4.38 | % | ||||||||
Advisor Class Shares** | 1.63 | % | ||||||||||
1 Year | 6.59 | % | 6.59 | % | ||||||||
5 Years | 6.67 | % | 6.67 | % | ||||||||
10 Years | 5.43 | % | 5.43 | % | ||||||||
Class R Shares** | 1.04 | % | ||||||||||
1 Year | 6.05 | % | 6.05 | % | ||||||||
5 Years | 6.12 | % | 6.12 | % | ||||||||
Since Inception† | 4.98 | % | 4.98 | % | ||||||||
Class K Shares** | 1.32 | % | ||||||||||
1 Year | 6.32 | % | 6.32 | % | ||||||||
5 Years | 6.38 | % | 6.38 | % | ||||||||
Since Inception† | 5.48 | % | 5.48 | % | ||||||||
Class I Shares** | 1.64 | % | ||||||||||
1 Year | 6.58 | % | 6.58 | % | ||||||||
5 Years | 6.69 | % | 6.69 | % | ||||||||
Since Inception† | 5.76 | % | 5.76 | % |
The Portfolio’s prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.00%, 1.75%, 1.71%, 0.70%, 1.31%, 1.01% and 0.68% for Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios (exclusive of interest expense) to 0.85%, 1.55%, 1.55%, 0.55%, 1.05%, 0.80% and 0.55% for Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. These waivers/reimbursements extend through January 31, 2013 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
* | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 2012. |
(a) | Assumes conversion of Class B shares into Class A shares after six years. |
** | These share classes are offered at NAV to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
† | Inception dates: 11/3/03 for Class R shares; 3/1/05 for Class K and Class I shares. |
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2012) | ||||
SEC Returns | ||||
Class A Shares | ||||
1 Year | 1.15 | % | ||
5 Years | 5.46 | % | ||
10 Years | 4.55 | % | ||
Class B Shares | ||||
1 Year | 1.93 | % | ||
5 Years | 5.64 | % | ||
10 Years(a) | 4.62 | % | ||
Class C Shares | ||||
1 Year | 3.90 | % | ||
5 Years | 5.65 | % | ||
10 Years | 4.30 | % | ||
Advisor Class Shares** | ||||
1 Year | 5.85 | % | ||
5 Years | 6.69 | % | ||
Since Inception† | 5.32 | % | ||
Class R Shares** | ||||
1 Year | 5.41 | % | ||
5 Years | 6.16 | % | ||
Since Inception† | 4.98 | % | ||
Class K Shares** | ||||
1 Year | 5.67 | % | ||
5 Years | 6.43 | % | ||
Since Inception† | 5.48 | % | ||
Class I Shares** | ||||
1 Year | 5.84 | % | ||
5 Years | 6.69 | % | ||
Since Inception† | 5.74 | % |
(a) | Assumes conversion of Class B shares into Class A shares after six years. |
** | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
† | Inception dates: 11/3/03 for Class R shares; 3/1/05 for Class K and Class I shares. |
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
8 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2012 | Ending Account Value October 31, 2012 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,037.20 | $ | 4.35 | 0.85 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.86 | $ | 4.32 | 0.85 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,034.40 | $ | 7.93 | 1.55 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.34 | $ | 7.86 | 1.55 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,033.60 | $ | 7.92 | 1.55 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.34 | $ | 7.86 | 1.55 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,039.60 | $ | 2.82 | 0.55 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.37 | $ | 2.80 | 0.55 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,036.10 | $ | 5.37 | 1.05 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.86 | $ | 5.33 | 1.05 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,037.40 | $ | 4.10 | 0.80 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.11 | $ | 4.06 | 0.80 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,039.60 | $ | 2.82 | 0.55 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 9 |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2012 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $541.8
* | All data are as of October 31, 2012. The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
10 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio Summary
PORTFOLIO OF INVESTMENTS
October 31, 2012
Principal Amount (000) | U.S. $ Value | |||||||||||
|
|
|
|
|
|
| ||||||
CORPORATES - INVESTMENT | ||||||||||||
Industrial – 12.8% | ||||||||||||
Basic – 1.4% | ||||||||||||
Alcoa, Inc. | U.S.$ | 795 | $ | 822,973 | ||||||||
AngloGold Ashanti Holdings PLC | 855 | 899,869 | ||||||||||
ArcelorMittal | 852 | 849,177 | ||||||||||
ArcelorMittal USA LLC | 150 | 156,421 | ||||||||||
Dow Chemical Co. (The) | 360 | 393,501 | ||||||||||
5.25%, 11/15/41 | 350 | 400,316 | ||||||||||
7.60%, 5/15/14 | 462 | 509,346 | ||||||||||
8.55%, 5/15/19 | 490 | 664,492 | ||||||||||
International Paper Co. | 235 | 267,590 | ||||||||||
7.95%, 6/15/18 | 830 | 1,079,322 | ||||||||||
Vale SA | 1,370 | 1,467,685 | ||||||||||
|
| |||||||||||
7,510,692 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.6% | ||||||||||||
ADT Corp. (The) | 315 | 320,545 | ||||||||||
Embraer SA | 369 | 403,317 | ||||||||||
Owens Corning | 955 | 1,074,986 | ||||||||||
Republic Services, Inc. | 508 | 607,299 | ||||||||||
5.50%, 9/15/19 | 753 | 892,715 | ||||||||||
|
| |||||||||||
3,298,862 | ||||||||||||
|
| |||||||||||
Communications - Media – 2.5% | ||||||||||||
CBS Corp. | 710 | 857,381 | ||||||||||
8.875%, 5/15/19 | 530 | 729,405 | ||||||||||
Comcast Cable Communications | 1,439 | 2,177,888 | ||||||||||
DirecTV Holdings LLC/DirecTV | 715 | 744,973 | ||||||||||
4.60%, 2/15/21 | 565 | 626,174 | ||||||||||
4.75%, 10/01/14 | 525 | 563,772 | ||||||||||
Globo Comunicacao e Participacoes SA | 431 | 475,177 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 11 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
News America, Inc. | U.S.$ | 893 | $ | 1,135,503 | ||||||
6.55%, 3/15/33 | 142 | 174,389 | ||||||||
9.25%, 2/01/13 | 310 | 315,850 | ||||||||
Omnicom Group, Inc. | 460 | 491,985 | ||||||||
Reed Elsevier Capital, Inc. | 1,193 | 1,598,804 | ||||||||
Time Warner Cable, Inc. | 740 | 871,105 | ||||||||
7.50%, 4/01/14 | 1,055 | 1,153,822 | ||||||||
Time Warner Entertainment Co. LP | 325 | 463,215 | ||||||||
WPP Finance UK | 1,185 | 1,323,133 | ||||||||
|
| |||||||||
13,702,576 | ||||||||||
|
| |||||||||
Communications - | ||||||||||
American Tower Corp. 5.05%, | 1,185 | 1,331,580 | ||||||||
AT&T, Inc. | 646 | 768,625 | ||||||||
5.35%, 9/01/40 | 233 | 285,767 | ||||||||
British Telecommunications PLC | 576 | 590,803 | ||||||||
5.95%, 1/15/18 | 193 | 231,735 | ||||||||
Deutsche Telekom International | 1,170 | 1,274,463 | ||||||||
Telecom Italia Capital SA | 110 | 106,150 | ||||||||
7.175%, 6/18/19 | 515 | 590,963 | ||||||||
Telefonica Emisiones SAU | 520 | 528,450 | ||||||||
United States Cellular Corp. | 775 | 812,339 | ||||||||
|
| |||||||||
6,520,875 | ||||||||||
|
| |||||||||
Consumer Cyclical - Automotive – 0.5% | ||||||||||
Ford Motor Credit Co. LLC | 1,460 | 1,610,444 | ||||||||
Harley-Davidson Funding Corp. | 1,010 | 1,109,848 | ||||||||
|
| |||||||||
2,720,292 | ||||||||||
|
| |||||||||
Consumer Cyclical - | ||||||||||
Time Warner, Inc. | 600 | 696,950 |
12 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
7.625%, 4/15/31 | U.S.$ | 1,285 | $ | 1,843,091 | ||||||
Viacom, Inc. | 240 | 289,260 | ||||||||
|
| |||||||||
2,829,301 | ||||||||||
|
| |||||||||
Consumer Cyclical - Other – 0.3% | ||||||||||
Marriott International, Inc./DE | 1,370 | 1,387,407 | ||||||||
|
| |||||||||
Consumer Cyclical - Retailers – 0.4% | ||||||||||
CVS Caremark Corp. | 605 | 780,640 | ||||||||
Macy’s Retail Holdings, Inc. | 1,315 | 1,445,165 | ||||||||
|
| |||||||||
2,225,805 | ||||||||||
|
| |||||||||
Consumer Non-Cyclical – 1.3% | ||||||||||
Ahold Finance USA LLC | 1,275 | 1,639,808 | ||||||||
Bunge Ltd. Finance Corp. | 130 | 139,877 | ||||||||
5.875%, 5/15/13 | 965 | 991,349 | ||||||||
Cadbury Schweppes US Finance LLC | 310 | 321,310 | ||||||||
Delhaize Group SA | 335 | 350,647 | ||||||||
Kroger Co. (The) | 966 | 1,030,806 | ||||||||
Laboratory Corp. of America Holdings | 272 | 280,337 | ||||||||
Reynolds American, Inc. | 616 | 623,037 | ||||||||
Tyson Foods, Inc. | 999 | 1,058,940 | ||||||||
Watson Pharmaceuticals, Inc. | 487 | 501,848 | ||||||||
|
| |||||||||
6,937,959 | ||||||||||
|
| |||||||||
Energy – 2.5% | ||||||||||
Anadarko Petroleum Corp. | 401 | 515,761 | ||||||||
Encana Corp. | 1,625 | 1,752,442 | ||||||||
Marathon Petroleum Corp. | 180 | 192,863 | ||||||||
5.125%, 3/01/21 | 889 | 1,048,255 | ||||||||
Nabors Industries, Inc. | 1,013 | 1,359,148 | ||||||||
Noble Energy, Inc. | 1,232 | 1,634,821 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 13 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Noble Holding International Ltd. | U.S.$ | 108 | $ | 124,196 | ||||||
Phillips 66 | 1,375 | 1,542,311 | ||||||||
Reliance Holdings USA, Inc. | 1,375 | 1,525,519 | ||||||||
Southwestern Energy Co. | 375 | 405,700 | ||||||||
Transocean, Inc. | 604 | 611,719 | ||||||||
Valero Energy Corp. | 770 | 951,102 | ||||||||
Weatherford International Ltd./Bermuda | 630 | 701,356 | ||||||||
6.00%, 3/15/18 | 91 | 104,739 | ||||||||
9.625%, 3/01/19 | 605 | 801,512 | ||||||||
|
| |||||||||
13,271,444 | ||||||||||
|
| |||||||||
Technology – 0.8% | ||||||||||
Agilent Technologies, Inc. | 217 | 251,198 | ||||||||
Hewlett-Packard Co. | 616 | 616,608 | ||||||||
Intel Corp. | 490 | 578,953 | ||||||||
Motorola Solutions, Inc. | 30 | 40,140 | ||||||||
Telefonaktiebolaget LM Ericsson | 1,365 | 1,432,924 | ||||||||
Xerox Corp. | 1,250 | 1,381,895 | ||||||||
|
| |||||||||
4,301,718 | ||||||||||
|
| |||||||||
Transportation - Airlines – 0.2% | ||||||||||
Southwest Airlines Co. | 730 | 780,726 | ||||||||
5.75%, 12/15/16 | 490 | 556,661 | ||||||||
|
| |||||||||
1,337,387 | ||||||||||
|
| |||||||||
Transportation - Services – 0.6% | ||||||||||
Asciano Finance Ltd. | 1,490 | 1,518,685 | ||||||||
Con-way, Inc. | 643 | 690,138 | ||||||||
Ryder System, Inc. | 383 | 435,870 | ||||||||
7.20%, 9/01/15 | 369 | 425,455 | ||||||||
|
| |||||||||
3,070,148 | ||||||||||
|
| |||||||||
69,114,466 | ||||||||||
|
|
14 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Financial Institutions – 10.7% | ||||||||||
Banking – 6.7% | ||||||||||
Bank of America Corp. | U.S.$ | 1,012 | $ | 1,243,884 | ||||||
7.375%, 5/15/14 | 1,050 | 1,147,269 | ||||||||
7.625%, 6/01/19 | 1,035 | 1,312,494 | ||||||||
Series L | 390 | 454,056 | ||||||||
Barclays Bank PLC | EUR | 860 | 1,220,160 | |||||||
Bear Stearns Cos. LLC (The) | U.S.$ | 315 | 357,031 | |||||||
5.70%, 11/15/14 | 1,655 | 1,809,873 | ||||||||
Citigroup, Inc. | 1,115 | 1,230,902 | ||||||||
5.375%, 8/09/20 | 723 | 845,652 | ||||||||
8.50%, 5/22/19 | 1,495 | 1,993,472 | ||||||||
Compass Bank | 1,339 | 1,332,016 | ||||||||
Countrywide Financial Corp. | 62 | 68,336 | ||||||||
DNB Bank ASA | 1,365 | 1,439,461 | ||||||||
Fifth Third Bancorp | 525 | 556,779 | ||||||||
Goldman Sachs Group, Inc. (The) | 630 | 731,353 | ||||||||
6.00%, 6/15/20 | 1,430 | 1,678,896 | ||||||||
7.50%, 2/15/19 | 990 | 1,236,313 | ||||||||
HSBC Holdings PLC | 1,430 | 1,566,506 | ||||||||
5.10%, 4/05/21 | 839 | 989,262 | ||||||||
ING Bank NV | 1,360 | 1,360,629 | ||||||||
JPMorgan Chase & Co. | 1,165 | 1,294,667 | ||||||||
4.50%, 1/24/22 | 520 | 587,493 | ||||||||
Macquarie Bank Ltd. | 282 | 306,289 | ||||||||
Macquarie Group Ltd. | 668 | 722,108 | ||||||||
Morgan Stanley | 1,030 | 1,136,999 | ||||||||
6.625%, 4/01/18 | 995 | 1,157,263 | ||||||||
Series G | 858 | 953,603 | ||||||||
National Capital Trust II | 372 | 375,898 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 15 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Nationwide Building Society | U.S.$ | 1,415 | $ | 1,655,290 | ||||||
Santander US Debt SAU | 1,500 | 1,503,657 | ||||||||
Societe Generale SA | 695 | 698,822 | ||||||||
SouthTrust Corp. | 1,470 | 1,574,004 | ||||||||
UBS AG/Stamford CT | 620 | 668,612 | ||||||||
UFJ Finance Aruba AEC | 172 | 179,061 | ||||||||
Unicredit Luxembourg Finance SA | 563 | 553,155 | ||||||||
Vesey Street Investment Trust I | 457 | 495,204 | ||||||||
|
| |||||||||
36,436,469 | ||||||||||
|
| |||||||||
Finance – 0.4% | ||||||||||
General Electric Capital Corp. | 544 | 615,540 | ||||||||
SLM Corp. | 825 | 909,562 | ||||||||
Series A | 885 | 919,515 | ||||||||
|
| |||||||||
2,444,617 | ||||||||||
|
| |||||||||
Insurance – 2.6% | ||||||||||
Allied World Assurance Co., Ltd. | 650 | 773,613 | ||||||||
Allstate Corp. (The) | 905 | 937,806 | ||||||||
American International Group, Inc. | 755 | 851,506 | ||||||||
6.40%, 12/15/20 | 680 | 835,107 | ||||||||
Coventry Health Care, Inc. | 295 | 344,567 | ||||||||
6.125%, 1/15/15 | 115 | 126,358 | ||||||||
6.30%, 8/15/14 | 900 | 978,557 | ||||||||
Guardian Life Insurance Co. of America | 542 | 753,227 | ||||||||
Hartford Financial Services Group, Inc. | 280 | 294,215 | ||||||||
5.125%, 4/15/22 | 435 | 495,325 | ||||||||
5.50%, 3/30/20 | 726 | 841,173 | ||||||||
Humana, Inc. | 130 | 148,325 | ||||||||
7.20%, 6/15/18 | 825 | 1,021,188 | ||||||||
Lincoln National Corp. | 361 | 478,032 |
16 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Markel Corp. | U.S.$ | 449 | $ | 545,383 | ||||||
Massachusetts Mutual Life Insurance Co. | 300 | 461,740 | ||||||||
Metlife Capital Trust IV | 590 | 712,370 | ||||||||
MetLife, Inc. | 358 | 472,314 | ||||||||
Nationwide Mutual Insurance Co. | 1,190 | 1,725,089 | ||||||||
WellPoint, Inc. | 486 | 502,711 | ||||||||
XL Group PLC | 824 | 876,643 | ||||||||
|
| |||||||||
14,175,249 | ||||||||||
|
| |||||||||
Other Finance – 0.2% | ||||||||||
ORIX Corp. | 998 | 1,059,817 | ||||||||
|
| |||||||||
REITS – 0.8% | ||||||||||
HCP, Inc. | 1,410 | 1,632,038 | ||||||||
Health Care REIT, Inc. | 1,410 | 1,610,110 | ||||||||
Healthcare Realty Trust, Inc. | 845 | 888,222 | ||||||||
|
| |||||||||
4,130,370 | ||||||||||
|
| |||||||||
58,246,522 | ||||||||||
|
| |||||||||
Utility – 3.3% | ||||||||||
Electric – 1.3% | ||||||||||
Allegheny Energy Supply Co. LLC | 870 | 962,277 | ||||||||
Constellation Energy Group, Inc. | 260 | 305,590 | ||||||||
FirstEnergy Corp. Series C | 279 | 377,153 | ||||||||
MidAmerican Energy Holdings Co. | 1,115 | 1,465,956 | ||||||||
Nisource Finance Corp. | 1,465 | 1,793,630 | ||||||||
Pacific Gas & Electric Co. | 530 | 594,576 | ||||||||
SPI Electricity & Gas Australia | 283 | 294,385 | ||||||||
TECO Finance, Inc. | 310 | 332,509 | ||||||||
5.15%, 3/15/20 | 380 | 444,915 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 17 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Union Electric Co. | U.S.$ | 140 | $ | 178,069 | ||||||
Wisconsin Energy Corp. | 140 | 150,150 | ||||||||
|
| |||||||||
6,899,210 | ||||||||||
|
| |||||||||
Natural Gas – 2.0% | ||||||||||
DCP Midstream LLC | 396 | 436,783 | ||||||||
Energy Transfer Partners LP | 411 | 504,781 | ||||||||
7.50%, 7/01/38 | 909 | 1,220,125 | ||||||||
Enterprise Products Operating LLC | 235 | 283,788 | ||||||||
EQT Corp. 8.125%, 6/01/19 | 689 | 863,758 | ||||||||
Kinder Morgan Energy Partners LP | 1,460 | 1,595,501 | ||||||||
4.15%, 3/01/22 | 339 | 374,377 | ||||||||
ONEOK, Inc. | 1,345 | 1,487,052 | ||||||||
Talent Yield Investments Ltd. | 1,365 | 1,487,331 | ||||||||
TransCanada PipeLines Ltd. | 1,670 | 1,794,634 | ||||||||
Williams Partners LP | 733 | 863,102 | ||||||||
|
| |||||||||
10,911,232 | ||||||||||
|
| |||||||||
17,810,442 | ||||||||||
|
| |||||||||
Non Corporate Sectors – 0.5% | ||||||||||
Agencies - Not Government Guaranteed – 0.5% | ||||||||||
Abu Dhabi National Energy Co. | 231 | 246,617 | ||||||||
Gazprom OAO Via Gaz Capital SA | 977 | 1,088,593 | ||||||||
Petrobras International Finance Co. - Pifco | 1,045 | 1,185,089 | ||||||||
|
| |||||||||
2,520,299 | ||||||||||
|
| |||||||||
Total Corporates - Investment Grades | 147,691,729 | |||||||||
|
| |||||||||
MORTGAGE PASS- | ||||||||||
Agency Fixed Rate 30-Year – 17.2% | ||||||||||
Federal Home Loan Mortgage | 10,744 | 11,513,937 |
18 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
5.50%, 4/01/38 | U.S.$ | 1,993 | $ | 2,169,255 | ||||||
5.50%, 1/01/35 | 1,003 | 1,098,256 | ||||||||
5.50%, 7/01/35 | 142 | 155,298 | ||||||||
Federal National Mortgage Association | 10,950 | 11,642,929 | ||||||||
4.00%, 1/01/41-12/01/41 | 16,423 | 17,612,106 | ||||||||
4.50%, TBA | 7,740 | 8,349,525 | ||||||||
5.50%, 1/01/35-6/01/38 | 8,026 | 8,828,992 | ||||||||
6.00%, TBA | 380 | 421,147 | ||||||||
6.00%, 2/01/38-7/01/39 | 5,785 | 6,427,595 | ||||||||
Series 2003 | 136 | 148,923 | ||||||||
5.50%, 4/01/33-7/01/33 | 1,061 | 1,177,638 | ||||||||
Series 2004 | 602 | 666,471 | ||||||||
6.00%, 9/01/34 | 227 | 255,682 | ||||||||
Series 2005 | 406 | 438,810 | ||||||||
5.50%, 2/01/35 | 448 | 497,698 | ||||||||
Series 2006 | 375 | 410,694 | ||||||||
5.50%, 4/01/36 | 1,022 | 1,127,532 | ||||||||
6.00%, 2/01/36 | 1,520 | 1,715,007 | ||||||||
Series 2007 | 350 | 379,056 | ||||||||
5.00%, 11/01/35-7/01/36 | 4,479 | 4,898,118 | ||||||||
5.50%, 8/01/37 | 3,825 | 4,244,816 | ||||||||
Series 2008 | 6,170 | 6,883,740 | ||||||||
Series 2010 | 1,470 | 1,630,512 | ||||||||
Government National Mortgage Association | – 0 | – | 86 | |||||||
Series 1999 | 137 | 147,949 | ||||||||
|
| |||||||||
92,841,772 | ||||||||||
|
| |||||||||
Agency Fixed Rate 15-Year – 3.1% | ||||||||||
Federal National Mortgage Association | 5,310 | 5,601,221 | ||||||||
4.50%, TBA | 3,460 | 3,727,339 | ||||||||
4.50%, 3/01/25-6/01/26 | 6,820 | 7,372,990 | ||||||||
Government National Mortgage Association | 144 | 145,722 | ||||||||
|
| |||||||||
16,847,272 | ||||||||||
|
| |||||||||
Agency ARMs – 1.2% | ||||||||||
Federal Home Loan Mortgage Corp. | 936 | 1,010,611 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 19 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
4.225%, 11/01/35(d) | U.S.$ | 1,779 | $ | 1,899,585 | ||||||
Series 2006 | 374 | 400,791 | ||||||||
2.926%, 1/01/37(d) | 102 | 109,380 | ||||||||
Series 2007 | 1,262 | 1,351,415 | ||||||||
Federal National Mortgage Association | 1,288 | 1,355,982 | ||||||||
2.985%, 8/01/37(c) | 487 | 524,371 | ||||||||
|
| |||||||||
6,652,135 | ||||||||||
|
| |||||||||
Total Mortgage Pass-Throughs | 116,341,179 | |||||||||
|
| |||||||||
GOVERNMENTS - TREASURIES – 20.4% | ||||||||||
United States – 20.4% | ||||||||||
U.S. Treasury Bonds | 805 | 788,649 | ||||||||
3.00%, 5/15/42 | 2,755 | 2,845,830 | ||||||||
3.125%, 2/15/42 | 1,120 | 1,187,200 | ||||||||
4.50%, 2/15/36 | 7,119 | 9,471,343 | ||||||||
4.625%, 2/15/40 | 9,825 | 13,438,753 | ||||||||
5.375%, 2/15/31 | 1,385 | 1,996,131 | ||||||||
U.S. Treasury Notes | 3,340 | 3,312,081 | ||||||||
0.625%, 8/31/17 | 2,220 | 2,213,930 | ||||||||
0.75%, 6/30/17 | 2,245 | 2,253,769 | ||||||||
0.875%, 11/30/16-1/31/17 | 6,300 | 6,375,316 | ||||||||
1.00%, 8/31/16 | 34,080 | 34,695,042 | ||||||||
1.50%, 6/30/16 | 10,090 | 10,456,549 | ||||||||
1.625%, 8/15/22 | 3,520 | 3,500,749 | ||||||||
1.75%, 5/15/22 | 595 | 600,857 | ||||||||
2.00%, 11/15/21 | 11,480 | 11,924,850 | ||||||||
2.625%, 4/30/16 | 4,875 | 5,239,484 | ||||||||
|
| |||||||||
Total Governments - Treasuries | 110,300,533 | |||||||||
|
| |||||||||
ASSET - BACKED SECURITIES – 10.5% | ||||||||||
Autos-Fixed Rate – 5.4% | ||||||||||
Ally Auto Receivables Trust | 1,124 | 1,126,009 | ||||||||
Series 2012-5, Class A2 | 805 | 804,809 | ||||||||
Ally Master Owner Trust | 1,560 | 1,574,213 | ||||||||
AmeriCredit Automobile Receivables Trust | 431 | 432,813 |
20 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Series 2012-4, Class A2 | U.S.$ | 2,025 | $ | 2,025,517 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 1,005 | 1,022,375 | ||||||||
Bank of America Auto Trust | 930 | 940,923 | ||||||||
CarMax Auto Owner Trust | 715 | 719,336 | ||||||||
Exeter Automobile Receivables Trust | 726 | 731,465 | ||||||||
Series 2012-2A, Class A | 1,279 | 1,279,075 | ||||||||
Ford Auto Securitization Trust | CAD | 1,914 | 1,923,544 | |||||||
Ford Credit Auto Lease Trust | U.S.$ | 1,521 | 1,522,580 | |||||||
Ford Credit Auto Owner Trust | 895 | 904,352 | ||||||||
Ford Credit Floorplan Master Owner Trust | 3,080 | 3,082,204 | ||||||||
Mercedes-Benz Auto Lease Trust | 1,151 | 1,152,880 | ||||||||
Navistar Financial Corp. Owner Trust | 1,645 | 1,647,122 | ||||||||
Nissan Auto Lease Trust | 1,235 | 1,237,910 | ||||||||
Series 2012-B, Class A2A | 685 | 685,097 | ||||||||
Porsche Innovative Lease Owner Trust | 1,725 | 1,729,542 | ||||||||
Santander Drive Auto Receivables Trust | 1,470 | 1,480,339 | ||||||||
Series 2012-6, Class A2 | 600 | 600,198 | ||||||||
SMART Trust/Australia | 910 | 910,336 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 21 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
World Omni Automobile Lease | U.S.$ | 1,631 | $ | 1,642,061 | ||||||
|
| |||||||||
29,174,700 | ||||||||||
|
| |||||||||
Credit Cards - Fixed Rate – 2.1% | ||||||||||
American Express Credit Account Master Trust | 2,910 | 2,917,723 | ||||||||
Chase Issuance Trust | 1,355 | 1,351,917 | ||||||||
Citibank Credit Card Issuance Trust | 1,585 | 1,583,920 | ||||||||
Discover Card Master Trust | 791 | 797,289 | ||||||||
Series 2012-A3, Class A3 | 891 | 898,663 | ||||||||
GE Capital Credit Card Master Note Trust | 1,445 | 1,455,817 | ||||||||
Series 2012-7, Class A | 1,245 | 1,244,667 | ||||||||
World Financial Network Credit Card | 890 | 894,161 | ||||||||
|
| |||||||||
11,144,157 | ||||||||||
|
| |||||||||
Credit Cards - Floating Rate – 1.3% | ||||||||||
American Express Credit Account Master Trust | 1,365 | 1,367,985 | ||||||||
Chase Issuance Trust | 2,635 | 2,638,107 | ||||||||
Gracechurch Card Funding PLC | EUR | 1,235 | 1,614,895 | |||||||
Penarth Master Issuer PLC | U.S.$ | 1,571 | 1,572,513 | |||||||
|
| |||||||||
7,193,500 | ||||||||||
|
|
22 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Other ABS - Fixed Rate – 0.8% | ||||||||||
CIT Canada Equipment Receivables Trust | CAD | 464 | $ | 464,731 | ||||||
CIT Equipment Collateral | U.S.$ | 773 | 775,409 | |||||||
CNH Equipment Trust | 496 | 498,040 | ||||||||
Series 2012-A, Class A3 | 1,061 | 1,070,110 | ||||||||
GE Equipment Midticket LLC | 567 | 569,256 | ||||||||
GE Equipment Small Ticket LLC | 807 | 808,390 | ||||||||
|
| |||||||||
4,185,936 | ||||||||||
|
| |||||||||
Other ABS - Floating Rate – 0.5% | ||||||||||
GE Dealer Floorplan Master Note Trust | 2,895 | 2,908,853 | ||||||||
|
| |||||||||
Autos - Floating Rate – 0.4% | ||||||||||
BMW Floorplan Master Owner Trust | 2,040 | 2,040,887 | ||||||||
|
| |||||||||
Home Equity Loans - Fixed | ||||||||||
Citifinancial Mortgage Securities, Inc. | 75 | 76,883 | ||||||||
Credit-Based Asset Servicing and | 168 | 166,371 | ||||||||
Nationstar NIM Trust | 18 | – 0 | – | |||||||
|
| |||||||||
243,254 | ||||||||||
|
| |||||||||
Home Equity Loans - Floating | ||||||||||
Asset Backed Funding Certificates | 80 | 74,126 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 23 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
HSBC Home Equity Loan Trust | U.S.$ | 105 | $ | 101,156 | ||||||
|
| |||||||||
175,282 | ||||||||||
|
| |||||||||
Total Asset-Backed Securities | 57,066,569 | |||||||||
|
| |||||||||
AGENCIES – 8.0% | ||||||||||
Agency Debentures – 8.0% | ||||||||||
Federal Farm Credit Bank | 13,510 | 13,516,201 | ||||||||
Federal Home Loan Mortgage Corp. | 6,359 | 6,664,346 | ||||||||
Federal National Mortgage Association | 8,610 | 12,532,174 | ||||||||
Residual Funding Corp. Principal Strip | 12,340 | 10,870,812 | ||||||||
|
| |||||||||
Total Agencies | 43,583,533 | |||||||||
|
| |||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 5.5% | ||||||||||
Non-Agency Fixed Rate CMBS – 5.5% | ||||||||||
Commercial Mortgage Pass Through | 2,130 | 2,449,196 | ||||||||
Credit Suisse Mortgage Capital | 2,850 | 3,276,149 | ||||||||
CW Capital Cobalt Ltd. | 1,200 | 1,405,908 | ||||||||
Greenwich Capital Commercial Funding Corp. | 775 | 594,696 | ||||||||
Series 2007-GG9, Class A4 | 2,495 | 2,874,095 | ||||||||
GS Mortgage Securities Corp. II | 2,680 | 2,900,441 | ||||||||
JP Morgan Chase Commercial Mortgage | 1,455 | 1,638,107 |
24 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Series 2006-CB15, Class A4 | U.S.$ | 2,335 | $ | 2,686,726 | ||||||
Series 2006-CB16, Class A4 | 1,810 | 2,088,937 | ||||||||
Series 2007-LD11, Class A4 | 2,485 | 2,909,779 | ||||||||
Series 2007-LD12, Class AM | 795 | 863,001 | ||||||||
Series 2010-C2, Class A1 | 1,091 | 1,141,916 | ||||||||
Merrill Lynch Mortgage Trust | 1,118 | 1,141,185 | ||||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | 220 | 254,677 | ||||||||
Series 2007-9, Class A4 | 2,940 | 3,451,019 | ||||||||
Prudential Securities Secured Financing Corp. | 7,693 | 153,118 | ||||||||
|
| |||||||||
29,828,950 | ||||||||||
|
| |||||||||
Agency CMBS – 0.0% | ||||||||||
Government National Mortgage | 6,914 | 59,565 | ||||||||
|
| |||||||||
Total Commercial Mortgage-Backed Securities | 29,888,515 | |||||||||
|
| |||||||||
CORPORATES - NON-INVESTMENT GRADES – 1.2% | ||||||||||
Industrial – 0.8% | ||||||||||
Basic – 0.1% | ||||||||||
LyondellBasell Industries NV | 766 | 886,645 | ||||||||
|
| |||||||||
Capital Goods – 0.3% | ||||||||||
B/E Aerospace, Inc. | 825 | 860,062 | ||||||||
Ball Corp. | 820 | 865,100 | ||||||||
|
| |||||||||
1,725,162 | ||||||||||
|
|
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 25 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Consumer Cyclical - Other – 0.3% | ||||||||||
Host Hotels & Resorts LP | U.S.$ | 545 | $ | 602,225 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas | 825 | 851,812 | ||||||||
|
| |||||||||
1,454,037 | ||||||||||
|
| |||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||
Dollar General Corp. | 228 | 238,260 | ||||||||
|
| |||||||||
Energy – 0.1% | ||||||||||
Cimarex Energy Co. | 395 | 421,663 | ||||||||
|
| |||||||||
4,725,767 | ||||||||||
|
| |||||||||
Financial Institutions – 0.3% | ||||||||||
Banking – 0.2% | ||||||||||
ABN Amro Bank NV | EUR | 340 | 328,403 | |||||||
LBG Capital No.1 PLC | U.S.$ | 635 | 607,673 | |||||||
|
| |||||||||
936,076 | ||||||||||
|
| |||||||||
Other Finance – 0.1% | ||||||||||
Aviation Capital Group Corp. | 552 | 581,928 | ||||||||
|
| |||||||||
1,518,004 | ||||||||||
|
| |||||||||
Utility – 0.1% | ||||||||||
Electric – 0.1% | ||||||||||
CMS Energy Corp. | 440 | 491,502 | ||||||||
|
| |||||||||
Total Corporates - Non-Investment Grades | 6,735,273 | |||||||||
|
| |||||||||
QUASI-SOVEREIGNS – 1.2% | ||||||||||
Quasi-Sovereign Bonds – 1.2% | ||||||||||
Indonesia – 0.2% | ||||||||||
Perusahaan Listrik Negara PT | 839 | 945,973 | ||||||||
|
| |||||||||
Kazakhstan – 0.2% | ||||||||||
KazMunayGas National Co. | 790 | 970,736 | ||||||||
|
| |||||||||
Malaysia – 0.3% | ||||||||||
Petronas Capital Ltd. | 1,385 | 1,658,339 | ||||||||
|
|
26 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
|
|
| ||||||||||
South Korea – 0.2% | ||||||||||||
Korea National Oil Corp. | U.S.$ | 1,365 | $ | 1,434,530 | ||||||||
|
| |||||||||||
United Arab Emirates – 0.3% | ||||||||||||
IPIC GMTN Ltd. | 1,365 | 1,446,900 | ||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 6,456,478 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE | ||||||||||||
Non-Agency Fixed Rate – 0.6% | ||||||||||||
Citigroup Mortgage Loan Trust, Inc. | 1,114 | 1,078,778 | ||||||||||
JP Morgan Alternative Loan Trust | 1,358 | 826,597 | ||||||||||
Structured Asset Securities Corp. | 1,212 | 1,076,433 | ||||||||||
Series 2003-6A, Class B3 | 645 | 35,346 | ||||||||||
|
| |||||||||||
3,017,154 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate – 0.2% | ||||||||||||
WaMu Mortgage Pass Through Certificates | 1,580 | 1,086,573 | ||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.0% | ||||||||||||
Fannie Mae Grantor Trust | 65 | 56,472 | ||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 4,160,199 | |||||||||||
|
| |||||||||||
GOVERNMENTS - SOVEREIGN | ||||||||||||
Indonesia – 0.3% | ||||||||||||
Indonesia Government International Bond 5.25%, 1/17/42(a) | 1,370 | 1,578,925 | ||||||||||
|
| |||||||||||
Qatar – 0.2% | ||||||||||||
Qatar Government International Bond | 1,108 | 1,268,660 | ||||||||||
|
| |||||||||||
Total Governments - Sovereign Bonds | 2,847,585 | |||||||||||
|
|
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 27 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||||
|
|
| ||||||||||
LOCAL GOVERNMENTS – MUNICIPAL BONDS – 0.4% | ||||||||||||
United States – 0.4% | ||||||||||||
California GO | U.S.$ | 1,355 | $ | 1,894,751 | ||||||||
|
| |||||||||||
| Shares | |||||||||||
SHORT-TERM INVESTMENTS – 8.2% | ||||||||||||
Investment Companies – 5.2% | ||||||||||||
AllianceBerstein Fixed-Income Shares, Inc. -Government STIF Portfolio, 0.15%(i) | 28,303,873 | 28,303,873 | ||||||||||
|
| |||||||||||
| Principal Amount (000) | |||||||||||
Treasury Bill – 3.0% | ||||||||||||
Japan Treasury Discount Bill | JPY | 1,280,000 | 16,033,612 | |||||||||
|
| |||||||||||
Total Short-Term Investments | 44,337,485 | |||||||||||
|
| |||||||||||
Total Investments – 105.5% | 571,303,829 | |||||||||||
Other assets less liabilities – (5.5)% | (29,529,627 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 541,774,202 | ||||||||||
|
|
FUTURES CONTRACTS (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at October 31, 2012 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Sold Contracts | ||||||||||||||||||||
U.S. T-Note | 18 | December 2012 | $ | 3,967,277 | $ | 3,965,906 | $ | 1,371 |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to | In Exchange | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Citibank NA | CAD | 2,493 | USD | 2,552 | 11/09/12 | $ | 56,182 | |||||||||||||||||
Deutsche Bank AG London | EUR | 5,459 | USD | 7,128 | 12/06/12 | 49,963 | ||||||||||||||||||
Royal Bank of Canada | CAD | 2,642 | USD | 2,692 | 11/09/12 | 47,146 | ||||||||||||||||||
Royal Bank of Scotland PLC | JPY | 1,280,000 | USD | 16,375 | 11/13/12 | 339,106 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 73 | CAD | 73 | 11/09/12 | (346 | ) | |||||||||||||||||
UBS AG | JPY | 425,942 | USD | 5,409 | 11/16/12 | 73,149 | ||||||||||||||||||
UBS AG | USD | 2,750 | MXN | 35,362 | 12/05/12 | (57,708 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 507,492 | |||||||||||||||||||||||
|
|
28 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
INTEREST RATE SWAP CONTRACTS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments by the | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
JPMorgan Chase Bank, NA | $ | 5,590 | 1/30/17 | 1.059 | % | 3 Month LIBOR | $ | (100,539 | ) | |||||||||||
JPMorgan Chase Bank, NA | 6,230 | 2/7/22 | 2.043 | % | 3 Month LIBOR | (254,861 | ) | |||||||||||||
|
| |||||||||||||||||||
$ | (355,400 | ) | ||||||||||||||||||
|
|
CREDIT DEFAULT SWAP CONTRACTS (see Note D)
Swap Counterparty Obligation | Fixed Rate (Pay) Receive | Implied 2012 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Credit Suisse | ||||||||||||||||||||||||
International: Anadarko Petroleum Corp., | 1.00 | % | 1.58 | % | $ | 1,360 | $ | (35,812 | ) | $ | (46,761 | ) | $ | 10,949 |
* | Termination date |
CROSS CURRENCY SWAP CONTRACTS (see Note D)
Counterparty | Expiration Date | Pay Currency | Pay Rate | Receive Currency | Receive Rate | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Barclays Bank PLC | 2/15/15 | EUR | | 1 Month EURIBOR Plus a | | USD | | 1 Month LIBOR Plus a | | $ | 42,874 |
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2012, the aggregate market value of these securities amounted to $57,474,990 or 10.6% of net assets. |
(b) | Coupon rate adjusts periodically based upon a predetermined schedule. Stated interest rate in effect at October 31, 2012. |
(c) | Variable rate coupon, rate shown as of October 31, 2012. |
(d) | Floating Rate Security. Stated interest rate was in effect at October 31, 2012. |
(e) | Fair valued by the Adviser. |
(f) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security, which represents 0.00% of net assets as of October 31, 2012, is considered illiquid and restricted. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 29 |
Portfolio of Investments
Restricted Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Nationstar NIM Trust | 4/04/07 | $ | 17,607 | $ | 0 | 0.00 | % |
(g) | Illiquid security. |
(h) | IO – Interest Only |
(i) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
CAD – Canadian Dollar
EUR – Euro
JPY – Japanese Yen
MXN – Mexican Peso
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
ARMs – Adjustable Rate Mortgages
CMBS – Commercial Mortgage-Backed Securities
EURIBOR – Euro Interbank Offered Rate
GO – General Obligation
LIBOR – London Interbank Offered Rates
REIT – Real Estate Investment Trust
TBA – To Be Announced
See notes to financial statements.
30 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio of Investments
STATEMENT OF ASSETS & LIABILITIES
October 31, 2012
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $509,329,339) | $ | 542,999,956 | ||
Affiliated issuers (cost $28,303,873) | 28,303,873 | |||
Cash | 8,362 | (a) | ||
Receivable for investment securities sold | 11,728,322 | |||
Interest and dividends receivable | 3,530,734 | |||
Unrealized appreciation of forward currency exchange contracts | 565,546 | |||
Receivable for capital stock sold | 458,236 | |||
Unrealized appreciation on cross currency swap contracts | 42,874 | |||
Unrealized appreciation on credit default swap contracts | 10,949 | |||
|
| |||
Total assets | 587,648,852 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased | 43,282,722 | |||
Payable for capital stock redeemed | 1,285,991 | |||
Unrealized depreciation on interest rate swap contracts | 355,400 | |||
Dividends payable | 331,135 | |||
Distribution fee payable | 155,451 | |||
Advisory fee payable | 138,861 | |||
Unrealized depreciation of forward currency exchange contracts | 58,054 | |||
Transfer Agent fee payable | 48,372 | |||
Premium received on credit default swap contracts | 46,761 | |||
Administrative fee payable | 21,824 | |||
Payable for variation margin on futures contracts | 845 | |||
Accrued expenses | 149,234 | |||
|
| |||
Total liabilities | 45,874,650 | |||
|
| |||
Net Assets | $ | 541,774,202 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 47,529 | ||
Additional paid-in capital | 551,928,986 | |||
Undistributed net investment income | 677,697 | |||
Accumulated net realized loss on investment and foreign currency transactions | (44,759,296 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 33,879,286 | |||
|
| |||
$ | 541,774,202 | |||
|
|
Net Asset Value Per Share—21 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 370,671,505 | 32,514,721 | $ | 11.40 | * | ||||||
| ||||||||||||
B | $ | 9,089,275 | 796,943 | $ | 11.41 | |||||||
| ||||||||||||
C | $ | 61,224,333 | 5,380,641 | $ | 11.38 | |||||||
| ||||||||||||
Advisor | $ | 94,584,166 | 8,293,184 | $ | 11.41 | |||||||
| ||||||||||||
R | $ | 1,568,045 | 137,523 | $ | 11.40 | |||||||
| ||||||||||||
K | $ | 3,822,514 | 335,060 | $ | 11.41 | |||||||
| ||||||||||||
I | $ | 814,364 | 71,338 | $ | 11.42 | |||||||
|
(a) | An amount of $4,050 has been segregated to collateralize margin requirements for open futures contracts outstanding at October 31, 2012. |
* | The maximum offering price per share for Class A shares was $11.91 which reflects a sales charge of 4.25%. |
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 31 |
Statement of Assets & Liabilities
STATEMENT OF OPERATIONS
Year Ended October 31, 2012
Investment Income | ||||||||
Interest | $ | 17,091,216 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 39,100 | |||||||
Affiliated issuers | 28,264 | $ | 17,158,580 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 2,457,595 | |||||||
Distribution fee—Class A | 1,125,114 | |||||||
Distribution fee—Class B | 101,251 | |||||||
Distribution fee—Class C | 620,290 | |||||||
Distribution fee—Class R | 7,795 | |||||||
Distribution fee—Class K | 8,370 | |||||||
Transfer agency—Class A | 541,726 | |||||||
Transfer agency—Class B | 20,096 | |||||||
Transfer agency—Class C | 96,626 | |||||||
Transfer agency—Advisor Class | 134,524 | |||||||
Transfer agency—Class R | 3,965 | |||||||
Transfer agency—Class K | 6,574 | |||||||
Transfer agency—Class I | 917 | |||||||
Custodian | 207,415 | |||||||
Registration fees | 63,175 | |||||||
Administrative | 63,075 | |||||||
Audit | 58,483 | |||||||
Printing | 44,391 | |||||||
Legal | 34,257 | |||||||
Directors’ fees | 10,803 | |||||||
Miscellaneous | 22,608 | |||||||
|
| |||||||
Total expenses | 5,629,050 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (762,405 | ) | ||||||
|
| |||||||
Net expenses | 4,866,645 | |||||||
|
| |||||||
Net investment income | 12,291,935 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 5,129,720 | (a) | ||||||
Futures contracts | (7,971 | ) | ||||||
Swap contracts | (1,369,219 | ) | ||||||
Foreign currency transactions | (833,874 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 16,725,560 | |||||||
Futures contracts | 1,371 | |||||||
Swap contracts | 567,350 | |||||||
Foreign currency denominated assets and liabilities and other assets | 483,571 | |||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 20,696,508 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 32,988,443 | ||||||
|
|
(a) | Includes reimbursement from Advisor of $369,671 (see Note B). |
See notes to financial statements.
32 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Statement of Operations
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 12,291,935 | $ | 18,524,537 | ||||
Net realized gain on investment and foreign currency transactions | 2,918,656 | 11,838,627 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities and other assets | 17,777,852 | (9,702,077 | ) | |||||
|
|
|
| |||||
Net increase in net assets from operations | 32,988,443 | 20,661,087 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (10,803,343 | ) | (13,589,921 | ) | ||||
Class B | (223,298 | ) | (373,781 | ) | ||||
Class C | (1,357,337 | ) | (1,708,102 | ) | ||||
Advisor Class | (2,944,926 | ) | (3,120,955 | ) | ||||
Class R | (39,970 | ) | (28,243 | ) | ||||
Class K | (96,136 | ) | (131,770 | ) | ||||
Class I | (24,064 | ) | (40,701 | ) | ||||
Capital Stock Transactions | ||||||||
Net decrease | (23,730,835 | ) | (50,771,470 | ) | ||||
Capital Contributions | ||||||||
Proceeds from third party regulatory settlement (see Note E) | 23,591 | – 0 | – | |||||
|
|
|
| |||||
Total decrease | (6,207,875 | ) | (49,103,856 | ) | ||||
Net Assets | ||||||||
Beginning of period | 547,982,077 | 597,085,933 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $677,697 and $4,402,419, respectively) | $ | 541,774,202 | $ | 547,982,077 | ||||
|
|
|
|
See notes to financial statements.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 33 |
Statement of Changes in Net Assets
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of five portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio, the Real Asset Strategy Portfolio and the Limited Duration High Income Portfolio. They are each diversified Portfolios, with the exception of the Limited Duration High Income Portfolio, which is non-diversified. The Limited Duration High Income Portfolio commenced operations on December 7, 2011. Each Portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the Intermediate Bond Portfolio. The Intermediate Bond Portfolio (the “Portfolio”) offers Class A, Class B, Class C, Advisor Class, Class R, Class K, and Class I shares. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class B shares are currently sold with a contingent deferred sales charge which declines from 3% to zero depending on the period of time the shares are held. Effective January 31, 2009, sales of Class B shares of the Portfolio to new investors were suspended. Class B shares will only be issued (i) upon the exchange of Class B shares from another AllianceBernstein Mutual Fund, (ii) for purposes of dividend reinvestment, (iii) through the Portfolio’s Automatic Investment Program (the “Program”) for accounts that established the Program prior to January 31, 2009, and (iv) for purchases of additional shares by Class B shareholders as of January 31, 2009. The ability to establish a new Program for accounts containing Class B shares was suspended as of January 31, 2009. Class B shares will automatically convert to Class A shares six years after the end of the calendar month of purchase. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class and Class I shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All seven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio.
34 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows: Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures contracts are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 35 |
Notes to Financial Statements
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset (including those valued based on their market values as described in Note 1 above) or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Valuations of mortgage-backed or other asset backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset backed securities for which management has collected current observable data through brokers or pricing services are generally categorized within Level 2. Those investments for which current data has not been provided are classified as Level 3.
36 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of October 31, 2012:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates—Investment Grades | $ | – 0 | – | $ | 147,691,729 | $ | – 0 | – | $ | 147,691,729 | ||||||
Mortgage Pass-Throughs | – 0 | – | 116,341,179 | –0 | – | 116,341,179 | ||||||||||
Governments—Treasuries | – 0 | – | 110,300,533 | –0 | – | 110,300,533 | ||||||||||
Asset-Backed Securities | – 0 | – | 52,462,097 | 4,604,472 | 57,066,569 | |||||||||||
Agencies | – 0 | – | 43,583,533 | –0 | – | 43,583,533 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 25,367,921 | 4,520,594 | 29,888,515 | |||||||||||
Corporates—Non-Investment Grades | – 0 | – | 6,735,273 | –0 | – | 6,735,273 | ||||||||||
Quasi-Sovereigns | – 0 | – | 6,456,478 | –0 | – | 6,456,478 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 56,472 | 4,103,727 | 4,160,199 | |||||||||||
Governments—Sovereign Bonds | – 0 | – | 2,847,585 | –0 | – | 2,847,585 | ||||||||||
Local Governments—Municipal Bonds | – 0 | – | 1,894,751 | –0 | – | 1,894,751 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 28,303,873 | – 0 | – | –0 | – | 28,303,873 | ||||||||||
Treasury Bill | – 0 | – | 16,033,612 | –0 | – | 16,033,612 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 28,303,873 | 529,771,163 | 13,228,793 | 571,303,829 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets: | ||||||||||||||||
Futures Contracts | 1,371 | – 0 | – | –0 | – | 1,371 | # | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 565,546 | –0 | – | 565,546 | ||||||||||
Credit Default Swap Contracts | – 0 | – | 10,949 | –0 | – | 10,949 | ||||||||||
Cross Currency Swap Contracts | – 0 | – | – 0 | – | 42,874 | 42,874 | ||||||||||
Liabilities: | ||||||||||||||||
Forward Currency Exchange Contracts | – 0 | – | (58,054 | ) | –0 | – | (58,054 | ) | ||||||||
Interest Rate Swap Contracts | – 0 | – | (355,400 | ) | –0 | – | (355,400 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total+ | $ | 28,305,244 | $ | 529,934,204 | $ | 13,271,667 | $ | 571,511,115 | ||||||||
|
|
|
|
|
|
|
|
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 37 |
Notes to Financial Statements
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
+ | There were no transfers between Level 1 and Level 2 during the reporting period. |
# | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of futures contracts as reported in the portfolio of investments. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Asset-Backed Securities | Commercial Mortgage- Backed Securities | Collateralized Mortgage Obligations | ||||||||||
Balance as of 10/31/11 | $ | 3,595,821 | $ | 4,358,584 | $ | 5,968,446 | ||||||
Accrued discounts/(premiums) | 208 | 60,539 | (861 | ) | ||||||||
Realized gain (loss) | (368,055 | ) | 235,306 | (2,261,222 | ) | |||||||
Change in unrealized appreciation/depreciation | 613,268 | 114,890 | 3,296,812 | |||||||||
Purchases | 3,377,519 | 3,559,625 | – 0 | – | ||||||||
Sales | (2,614,289 | ) | (977,513 | ) | (2,899,448 | ) | ||||||
Settlements | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | 235,565 | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | (3,066,402 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/12+ | $ | 4,604,472 | $ | 4,520,594 | $ | 4,103,727 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from Investments held | $ | 78,873 | $ | 254,279 | $ | 951,000 | ||||||
|
|
|
|
|
|
Bank Loans | Cross Currency Swap Contracts | Total | ||||||||||
Balance as of 10/31/11 | $ | 1,307,813 | $ | – 0 | – | $ | 15,230,664 | |||||
Accrued discounts/(premiums) | 6,664 | – 0 | – | 66,550 | ||||||||
Realized gain (loss) | 33,275 | 3,024 | (2,357,672 | ) | ||||||||
Change in unrealized appreciation/depreciation | 38,266 | 42,874 | 4,106,110 | |||||||||
Purchases | – 0 | – | – 0 | – | 6,937,144 | |||||||
Sales | (1,386,018 | ) | – 0 | – | (7,877,268 | ) | ||||||
Settlements | – 0 | – | (3,024 | ) | (3,024 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | 235,565 | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (3,066,402 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/12 | $ | – 0 | – | $ | 42,874 | $ | 13,271,667 | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from Investments held | $ | – 0 | – | $ | 42,874 | $ | 1,327,026 | |||||
|
|
|
|
|
|
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations. |
+ | There were de minimis transfers under 1% of net assets during the reporting period. |
38 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
The following presents information about significant unobservable inputs related to the Portfolio’s Level 3 investments at October 31, 2012:
Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
Fair Value at 10/31/2012 | Valuation | Unobservable | Range | |||||||
Asset-backed Securities | $ | 4,139,741 | Third Party Vendor | Evaluated Quotes | $92.23-$102.56 | |||||
464,731 | Indicative Market Quotations | Broker Quote | $100.15 | |||||||
0 | Qualitative Assessment | $0.00 | ||||||||
Commercial Mortgage-Backed Securities | $ | 4,520,594 | Third Party Vendor | Evaluated Quotes | $1.99-$117.09 | |||||
Collateralized Mortgage Obligations | $ | 4,103,727 | Third Party Vendor | Evaluated Quotes | $5.48-$96.88 | |||||
Cross Currency Swap | $ | 42,874 | Bloomberg Vendor Model | Bloomberg Currency Swap Curves | N/A |
The Adviser has established a Valuation Committee (the “Committee”) which is responsible for overseeing the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable comfort over the accuracy of prices including: 1) periodic vendor due diligence meetings, review methodologies, new developments, process at vendors, 2) daily compare of security valuation versus prior day for all fixed income securities that exceeded established thresholds, 3) monthly multi-source pricing compares, reviewed and submitted to the Committee, and 4) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 39 |
Notes to Financial Statements
In addition, there are several processes outside of the pricing process that are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
40 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to each Portfolio’s respective net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, .40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to .85%, 1.55%, 1.55%, .55%, 1.05%, .80% and .55% of the daily average net assets for the Class A, Class B, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. This waiver extends through January 31, 2013 and then may be extended by the Adviser for additional one year terms. For the year ended October 31, 2012, such reimbursement waivers amounted to $762,405.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended October 31, 2012, the reimbursement for such services amounted to $63,075.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 41 |
Notes to Financial Statements
providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $468,377 for the year ended October 31, 2012.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $19,439 from the sale of Class A shares and received $4,765, $2,764 and $2,805 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C shares, respectively, for the year ended October 31, 2012.
The Portfolio may invest in the AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio (“Government STIF Portfolio”), an open-end management investment company managed by the Adviser. The Government STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Portfolio’s transactions in shares of the Government STIF Portfolio for the year ended October 31, 2012 is as follows:
Market Value October 31, 2011 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2012 (000) | Dividend Income (000) | ||||||||||||
$ 80,830 | $ | 249,132 | $ | 301,658 | $ | 28,304 | $ | 28 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2012 amounted to $319, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
Prior to September 15, 2008, the Portfolio had swap counterparty exposure to Lehman Brothers Holdings Inc. (“Lehman Brothers”), as a guarantor for Lehman Brothers Special Financing Inc. (“LBSF”), which filed for bankruptcy on September 15, 2008. As a result, on September 15, 2008, the Portfolio terminated all outstanding swap contracts with LBSF prior to their scheduled maturity dates in accordance with the terms of the swap agreements. Upon the termination of the swap contracts, Lehman Brothers’ obligations to the Portfolio amounted to $743,058. The Portfolio’s claim to these obligations is subject to the pending bankruptcy proceeding against the Lehman Brothers estate (the “Bankruptcy Claim”). In accordance with its error correction policy, the Adviser has agreed to make the Portfolio whole in respect of the amount of the recovery that would be paid on the Bankruptcy Claim in the event the Bankruptcy Claim
42 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
is not honored by the Lehman Brothers estate, or with respect to any diminution in value upon the sale of the Bankruptcy Claim, in either case resulting from the manner in which the Bankruptcy Claim was processed by the Adviser. On April 9, 2012, the portfolio management team determined to dispose of the position held by the Portfolio that reflects the Bankruptcy Claim (thereby realizing upon the corresponding undertaking of the Adviser to make payment in respect of said Claim to make the Portfolio whole). On that date, the Bankruptcy Claim was being valued at $369,671 (49.75% of the Bankruptcy Claim), based upon the estimated recovery value. Accordingly, on April 13, 2012, the Adviser reimbursed the Portfolio in an amount equal to $369,671.
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to both Class B and Class C shares, .50% of the Portfolio’s average daily net assets attributable to Class R shares and .25% of the Portfolio’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on the Advisor Class and Class I shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $0, $913,235, $111,574 and $41,358 for Class B, Class C, Class R and Class K shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2012 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 200,724,200 | $ | 117,468,037 | ||||
U.S. government securities | 440,722,341 | 465,370,667 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 43 |
Notes to Financial Statements
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures, foreign currency and swap transactions) are as follows:
Cost | $ | 537,731,736 | ||
|
| |||
Gross unrealized appreciation | $ | 36,735,250 | ||
Gross unrealized depreciation | (3,163,157 | ) | ||
|
| |||
Net unrealized appreciation | $ | 33,572,093 | ||
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures Contracts |
The Portfolio may buy or sell futures contracts for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market or for investment purposes. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures contracts is generally less than privately negotiated futures contracts, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements). When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
44 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
Use of long futures contracts subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended October 31, 2012, the Portfolio held futures contracts for hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended October 31, 2012, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
• | Swap Agreements |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swap agreements to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 45 |
Notes to Financial Statements
Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swap contracts. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the statement of operations.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Portfolio may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
46 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
During the year ended October 31, 2012, the Portfolio held interest rate swaps for hedging purposes.
Currency Swaps:
The Portfolio may invest in currency swaps for hedging purposes to protect against adverse changes in exchange rates between the U.S. Dollar and other currencies or for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”. Currency swaps involve the individually negotiated exchange by a Portfolio with another party of a series of payments in specified currencies. Actual principal amounts of currencies may be exchanged by the counterparties at the initiation, and again upon the termination, of the transaction. Therefore, the entire principal value of a currency swap is subject to the risk that the swap counterparty will default on its contractual delivery obligations.
During the year ended October 31, 2012, the Portfolio held currency swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap agreement, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap agreement, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap contract (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 47 |
Notes to Financial Statements
During the year ended October 31, 2012, the Portfolio held credit default swaps for hedging and non-hedging purposes.
Implied credit spreads utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
At October 31, 2012, the Portfolio had a Sale Contract outstanding with a Maximum Payout Amount of $1,360,000, with net unrealized appreciation of $10,949, and a term of less than 5 years, as reflected in the portfolio of investments.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swap agreements entered into by the Portfolio for the same reference obligation with the same counterparty.
Documentation governing the Portfolio’s OTC derivatives may contain provisions for early termination of such transaction in the event the net assets of the Portfolio decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. As of October 31, 2012, the Portfolio had OTC derivatives with contingent features in net liability positions in the amount of $391,212. If a trigger event had occurred at October 31, 2012, for those derivatives in a net liability position, an amount of $391,212 would be required to be posted by the Portfolio.
At October 31, 2012, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign exchange contracts | Unrealized appreciation of forward currency exchange contracts | $ | 565,546 | | Unrealized depreciation of forward currency exchange contracts | $ | 58,054 | |
48 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Unrealized depreciation on interest rate swap contracts | $ | 355,400 | |||||||||
Foreign exchange contracts | Unrealized appreciation on cross currency swap contracts | $ | 42,874 | |||||||||
Credit contracts | Unrealized appreciation on credit default swap contracts | 10,949 | ||||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures contracts | 1,371 | * | |||||||||
|
|
|
| |||||||||
Total | $ | 620,740 | $ | 413,454 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of futures contracts as reported in the portfolio of investments. |
The effect of derivative instruments on the statement of operations for the year ended October 31, 2012:
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | $ | 207,078 | $ | 670,480 | |||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | 7,443 | (355,400 | ) | ||||||
Foreign exchange contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | 2,628 | 42,874 |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 49 |
Notes to Financial Statements
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Credit contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | $ | (1,379,290 | ) | $ | 879,876 | ||||
Interest rate contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | (7,971 | ) | 1,371 | ||||||
|
|
|
| |||||||
Total | $ | (1,170,112 | ) | $ | 1,239,201 | |||||
|
|
|
|
The following table represents the volume of the Portfolio’s derivative transactions during the year ended October 31, 2012:
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 11,224,738 | (a) | |
Average principal amount of sale contracts | $ | 25,927,882 | ||
Interest Rate Swap Contracts: | ||||
Average notional amount | $ | 13,349,121 | (b) | |
Cross Currency Swap Contracts: | ||||
Average notional amount | $ | 1,637,610 | (c) | |
Credit Default Swap Contracts: | ||||
Average notional amount of buy contracts | $ | 32,198,151 | (d) | |
Average notional amount of sale contracts | $ | 1,360,000 | (e) | |
Futures Contracts: | ||||
Average original value of sale contracts | $ | 4,957,286 |
(a) | Positions were open eleven months during the year. |
(b) | Positions were open ten months during the year. |
(c) | Positions were open eight months during the year. |
(d) | Positions were open four months during the year. |
(e) | Positions were open three months during the year. |
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such
50 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. Dollar Rolls
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques and may be considered to be borrowings by the Portfolio. For the year ended October 31, 2012, the Portfolio earned drop income of $389,017 which is included in interest income in the accompanying statement of operations.
4. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. For the year ended October 31, 2012, the Portfolio had no transactions in reverse repurchase agreements.
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 3,180,705 | 2,899,019 | $ | 35,397,916 | $ | 31,699,852 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 704,877 | 899,313 | 7,848,590 | 9,793,717 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares converted from Class B | 235,920 | 312,840 | 2,636,047 | 3,401,345 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (6,168,866 | ) | (7,606,304 | ) | (68,770,065 | ) | (82,758,220 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net decrease | (2,047,364 | ) | (3,495,132 | ) | $ | (22,887,512 | ) | $ | (37,863,306 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 51 |
Notes to Financial Statements
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 191,893 | 164,104 | $ | 2,141,659 | $ | 1,790,665 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 18,144 | 30,903 | 202,217 | 336,321 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares converted to Class A | (235,838 | ) | (312,754 | ) | (2,636,047 | ) | (3,401,345 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (182,557 | ) | (337,887 | ) | (2,036,753 | ) | (3,675,573 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net decrease | (208,358 | ) | (455,634 | ) | $ | (2,328,924 | ) | $ | (4,949,932 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Class C | ||||||||||||||||||||
Shares sold | 809,250 | 916,125 | $ | 8,991,383 | $ | 10,028,746 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 93,922 | 117,553 | 1,043,401 | 1,277,698 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (1,162,243 | ) | (1,465,825 | ) | (12,939,160 | ) | (15,896,017 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net decrease | (259,071 | ) | (432,147 | ) | $ | (2,904,376 | ) | $ | (4,589,573 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Advisor Class | ||||||||||||||||||||
Shares sold | 1,672,705 | 2,072,355 | $ | 18,639,976 | $ | 22,795,526 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 247,338 | 279,117 | 2,756,938 | 3,040,775 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (1,630,630 | ) | (2,536,553 | ) | (18,267,023 | ) | (27,472,513 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) | 289,413 | (185,081 | ) | $ | 3,129,891 | $ | (1,636,212 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Class R | ||||||||||||||||||||
Shares sold | 191,972 | 70,380 | $ | 2,139,063 | $ | 765,280 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 3,525 | 2,588 | 39,355 | 28,234 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (163,801 | ) | (36,220 | ) | (1,833,909 | ) | (392,662 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase | 31,696 | 36,748 | $ | 344,509 | $ | 400,852 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Class K | ||||||||||||||||||||
Shares sold | 98,325 | 138,633 | $ | 1,096,546 | $ | 1,506,114 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 8,569 | 12,302 | 95,603 | 134,067 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (31,478 | ) | (287,844 | ) | (350,698 | ) | (3,139,003 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) | 75,416 | (136,909 | ) | $ | 841,451 | $ | (1,498,822 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
52 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Class I | ||||||||||||||||||||
Shares sold | 6,737 | 13,178 | $ | 75,167 | $ | 144,328 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares issued in reinvestment of dividends | 2,153 | 3,809 | 24,026 | 41,484 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Shares redeemed | (2,255 | ) | (74,830 | ) | (25,067 | ) | (820,289 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) | 6,635 | (57,843 | ) | $ | 74,126 | $ | (634,477 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
For the year ended October 31, 2012, the Portfolio received $23,591 related to a third-party’s settlement of regulatory proceedings involving allegations of improper trading. This amount is presented in the Portfolio’s statement of changes in net assets. Neither the Portfolio nor its affiliates were involved in the proceedings or the calculation of the payment.
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Foreign Securities Risk—Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies or of the U.S. government.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory and other uncertainties.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 53 |
Notes to Financial Statements
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the real value of the Portfolio’s assets can decline as can the real value of the Portfolio’s distributions.
Currency Risk—This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce the returns of the Portfolio. For example, the value of the Portfolio’s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Portfolio’s investments denominated in foreign currencies, the Portfolio’s positions in various foreign currencies may cause the Portfolio to experience investment losses due to the changes in exchange rates and interest rates.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures contracts or by borrowing money. The use of derivative instruments by the Portfolio, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $140 million revolving credit facility (the “Facility”)
54 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended October 31, 2012.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 15,489,074 | $ | 18,993,473 | ||||
|
|
|
| |||||
Total taxable distributions paid | $ | 15,489,074 | $ | 18,993,473 | ||||
|
|
|
|
As of October 31, 2012, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 1,455,265 | ||
Accumulated capital and other losses | (44,665,589 | )(a) | ||
Unrealized appreciation/(depreciation) | 33,339,150 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (9,871,174 | )(c) | |
|
|
(a) | On October 31, 2012, the Portfolio had a net capital loss carryforward of $44,586,760. During the fiscal year, the Portfolio utilized $3,336,287 of capital loss carryforwards to offset current year net realized gains. The Portfolio also had $14,257,475 of capital loss carryforwards expire during the fiscal year. As of October 31, 2012, the cumulative deferred loss on straddles was $78,829. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the difference between book and tax amortization methods for premium, the tax treatment of swaps, and the realization for tax purposes of gains/losses on certain derivative instruments. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable. |
For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-enactment capital losses must be utilized prior to the pre-enactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 55 |
Notes to Financial Statements
As of October 31, 2012, the Portfolio had a net capital loss carryforward of $44,586,760 which will expire as follows:
Short-Term Amount | Long-Term | Expiration | ||||||
$ 12,682,229 | n/a | 2013 | ||||||
19,419,566 | n/a | 2014 | ||||||
12,484,965 | n/a | 2015 |
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, foreign currency reclassifications, the expiration of capital loss carryforwards, reclassifications of consent fees and paydown gains/losses, and the tax treatment of Treasury inflation-protected securities resulted in a net decrease in undistributed net investment income, a net decrease in accumulated net realized loss on investment and foreign currency transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I
Recent Accounting Pronouncement
In December 2011, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) related to disclosures about offsetting assets and liabilities in financial statements. The amendments in this update require an entity to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective during interim or annual reporting periods beginning on or after January 1, 2013. At this time, management is evaluating the implication of this ASU and its impact on the financial statements has not been determined.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
56 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.04 | $ 10.98 | $ 10.28 | $ 8.77 | $ 10.24 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .26 | .37 | .42 | .44 | .50 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .42 | .07 | .70 | 1.53 | (1.49 | ) | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | .68 | .44 | 1.12 | 1.97 | (.99 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.38 | ) | (.42 | ) | (.46 | ) | (.48 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 11.40 | $ 11.04 | $ 10.98 | $ 10.28 | $ 8.77 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 6.27 | %† | 4.11 | % | 11.17 | %* | 23.0 | 1 %* | (10.15 | ) % * | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period | $370,672 | $381,577 | $418,023 | $419,319 | $360,606 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .85 | % | .85 | % | .91 | %(e) | .89 | % | .85 | % | ||||||||||
Expenses, net of waivers/reimbursements, excluding interest expense and TALF administration fee | .85 | % | .85 | % | .85 | %(e) | .85 | % | .85 | % | ||||||||||
Expenses, before waivers/reimbursements | .99 | % | 1.00 | % | 1.11 | %(e) |
| 1.11 | % | 1.09 | % | |||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | .99 | % | 1.00 | % | 1.05 | %(e) | 1.07 | % | 1.09 | % | ||||||||||
Net investment income(b) | 2.29 | % | 3.42 | % | 3.98 | %(e) | 4.71 | % | 4.68 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 57 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.05 | $ 10.98 | $ 10.28 | $ 8.77 | $ 10.23 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment | ||||||||||||||||||||
Net investment income(a)(b) | .18 | .30 | .35 | .38 | .42 | |||||||||||||||
Net realized and unrealized | .43 | .08 | .70 | 1.52 | (1.47 | ) | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset | .61 | .38 | 1.05 | 1.90 | (1.05 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net | (.25 | ) | (.31 | ) | (.35 | ) | (.39 | ) | (.41 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of | $ 11.41 | $ 11.05 | $ 10.98 | $ 10.28 | $ 8.77 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return | 5.56 | %† | 3.50 | % | 10.40 | %* | 22.17 | %* | (10.69 | ) %* | ||||||||||
Ratios/Supplemental | ||||||||||||||||||||
Net assets, end of period | $9,089 | $11,104 | $16,048 | $21,830 | $31,207 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of | 1.55 | % | 1.55 | % | 1.62 | %(e) | 1.58 | % | 1.55 | % | ||||||||||
Expenses, net of | 1.55 | % | 1.55 | % | 1.55 | %(e) | 1.55 | % | 1.55 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.74 | % | 1.75 | % | 1.88 | %(e) | 1.87 | % | 1.83 | % | ||||||||||
Expenses, before | 1.74 | % | 1.75 | % | 1.81 | %(e) | 1.84 | % | 1.83 | % | ||||||||||
Net investment income(b) | 1.59 | % | 2.73 | % | 3.35 | %(e) | 4.07 | % | 3.95 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64
58 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.02 | $ 10.96 | $ 10.26 | $ 8.75 | $ 10.22 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .18 | .29 | .35 | .38 | .43 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .42 | .07 | .70 | 1.52 | (1.49 | ) | ||||||||||||||
Contributions from Adviser | – 0 – | – 0 – | – 0 – | – 0 – | .00 | (c) | ||||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | .60 | .36 | 1.05 | 1.90 | (1.06 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.24 | ) | (.30 | ) | (.35 | ) | (.39 | ) | (.41 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 11.38 | $ 11.02 | $ 10.96 | $ 10.26 | $ 8.75 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 5.55 | %† | 3.40 | % | 10.42 | %* | 22.22 | %* | (10.80 | )% * | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period | $61,224 | $62,147 | $66,568 | $61,635 | $51,708 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of | 1.55 | % | 1.55 | % | 1.61 | %(e) | 1.59 | % | 1.55 | % | ||||||||||
Expenses, net of | 1.55 | % | 1.55 | % | 1.55 | %(e) | 1.55 | % | 1.55 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.70 | % | 1.71 | % | 1.83 | %(e) | 1.82 | % | 1.80 | % | ||||||||||
Expenses, before waivers/reimbursements, excluding interest expense and TALF administration fee | 1.70 | % | 1.71 | % | 1.77 | %(e) | 1.78 | % | 1.80 | % | ||||||||||
Net investment | 1.60 | % | 2.72 | % | 3.27 | %(e) | 4.02 | % | 3.99 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 59 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.05 | $ 10.99 | $ 10.28 | $ 8.78 | $ 10.24 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .29 | .40 | .44 | .47 | .50 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .42 | .07 | .73 | 1.51 | (1.45 | ) | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | .71 | .47 | 1.17 | 1.98 | (.95 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.35 | ) | (.41 | ) | (.46 | ) | (.48 | ) | (.51 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 11.41 | $ 11.05 | $ 10.99 | $ 10.28 | $ 8.78 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 6.59 | %† | 4.43 | % | 11.59 | %* | 23.23 | %* | (9.78 | )%* | ||||||||||
Ratios/Supplemental | ||||||||||||||||||||
Net assets, end of period | $94,584 | $88,402 | $89,981 | $62,369 | $33,139 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .55 | % | .55 | % | .60 | %(e) | .60 | % | .55 | % | ||||||||||
Expenses, net of | .55 | % | .55 | % | .55 | %(e) | .55 | % | .55 | % | ||||||||||
Expenses, before waivers/reimbursements | .69 | % | .70 | % | .80 | %(e) | .80 | % | .80 | % | ||||||||||
Expenses, before | .69 | % | .70 | % | .75 | %(e) | .76 | % | .80 | % | ||||||||||
Net investment income(b) | 2.59 | % | 3.70 | % | 4.19 | %(e) | 4.95 | % | 4.98 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64.
60 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.04 | $ 10.98 | $ 10.28 | $ 8.77 | $ 10.24 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .23 | .34 | .37 | .43 | .46 | |||||||||||||||
Net realized and unrealized | .43 | .08 | .73 | 1.51 | (1.47 | ) | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | .66 | .42 | 1.10 | 1.94 | (1.01 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.36 | ) | (.40 | ) | (.43 | ) | (.46 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of | $ 11.40 | $ 11.04 | $ 10.98 | $ 10.28 | $ 8.77 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return | 6.05 | %† | 3.91 | % | 10.94 | %* | 22.74 | %* | (10.33 | )%* | ||||||||||
Ratios/Supplemental | ||||||||||||||||||||
Net assets, end of period | $1,568 | $1,168 | $759 | $156 | $73 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of | 1.05 | % | 1.05 | % | 1.08 | %(e) | 1.11 | % | 1.05 | % | ||||||||||
Expenses, net of | 1.05 | % | 1.05 | % | 1.05 | %(e) | 1.05 | % | 1.05 | % | ||||||||||
Expenses, before | 1.29 | % | 1.31 | % | 1.37 | %(e) | 1.38 | % | 1.25 | % | ||||||||||
Expenses, before | 1.29 | % | 1.31 | % | 1.34 | %(e) | 1.33 | % | 1.25 | % | ||||||||||
Net investment income(b) | 2.07 | % | 3.16 | % | 3.49 | %(e) | 4.39 | % | 4.45 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 61 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.05 | $ 10.99 | $ 10.29 | $ 8.78 | $ 10.25 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment | ||||||||||||||||||||
Net investment income(a)(b) | .26 | .38 | .43 | .45 | .48 | |||||||||||||||
Net realized and unrealized | .43 | .07 | .70 | 1.52 | (1.47 | ) | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset | .69 | .45 | 1.13 | 1.97 | (.99 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net | (.33 | ) | (.39 | ) | (.43 | ) | (.46 | ) | (.48 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of | $ 11.41 | $ 11.05 | $ 10.99 | $ 10.29 | $ 8.78 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return | 6.32 | %† | 4.17 | % | 11.21 | %* | 23.05 | %* | (10.09 | )%* | ||||||||||
Ratios/Supplemental | ||||||||||||||||||||
Net assets, end of period | $3,823 | $2,869 | $4,359 | $4,434 | $3,784 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of | .80 | % | .80 | % | .86 | %(e) | .84 | % | .80 | % | ||||||||||
Expenses, net of | .80 | % | .80 | % | .80 | %(e) | .80 | % | .80 | % | ||||||||||
Expenses, before | .99 | % | 1.01 | % | 1.09 | %(e) | 1.05 | % | 1.02 | % | ||||||||||
Expenses, before | .99 | % | 1.01 | % | 1.03 | %(e) | 1.01 | % | 1.02 | % | ||||||||||
Net investment income(b) | 2.34 | % | 3.49 | % | 4.02 | %(e) | 4.76 | % | 4.69 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64.
62 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, | $ 11.06 | $ 11.00 | $ 10.29 | $ 8.78 | $ 10.24 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment | ||||||||||||||||||||
Net investment income(a)(b) | .29 | .42 | .49 | .47 | .50 | |||||||||||||||
Net realized and unrealized | .42 | .05 | .68 | 1.52 | (1.45 | ) | ||||||||||||||
Contributions from Adviser | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset | .71 | .47 | 1.17 | 1.99 | (.95 | ) | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net | (.35 | ) | (.41 | ) | (.46 | ) | (.48 | ) | (.51 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of | $ 11.42 | $ 11.06 | $ 11.00 | $ 10.29 | $ 8.78 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return | 6.58 | %† | 4.42 | % | 11.59 | %* | 23.36 | %* | (9.78 | )%* | ||||||||||
Ratios/Supplemental | ||||||||||||||||||||
Net assets, end of period | $814 | $715 | $1,348 | $5,095 | $5,115 | |||||||||||||||
Ratio to average net | ||||||||||||||||||||
Expenses, net of | .55 | % | .55 | % | .67 | %(e) | .59 | % | .55 | % | ||||||||||
Expenses, net of | .55 | % | .55 | % | .55 | %(e) | .55 | % | .55 | % | ||||||||||
Expenses, before waivers/reimbursements | .66 | % | .68 | % | .81 | %(e) | .72 | % | .64 | % | ||||||||||
Expenses, before | .66 | % | .68 | % | .69 | %(e) | .68 | % | .64 | % | ||||||||||
Net investment income(b) | 2.59 | % | 3.76 | % | 4.60 | %(e) | 5.02 | % | 4.98 | % | ||||||||||
Portfolio turnover rate | 110 | % | 115 | % | 99 | % | 95 | % | 184 | % |
See footnote summary on page 64.
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 63 |
Financial Highlights
(a) | Based on average shares outstanding. |
(b) | Net of fees waived and expenses reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | The ratio includes expenses attributable to costs of proxy solicitation. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended October 31, 2010, October 31, 2009 and October 31, 2008 by 0.01%, 0.01%, and 0.21%, respectively. |
† | Includes the Adviser’s reimbursement in respect of the Lehman Bankruptcy Claim which contributed to the Portfolio’s performance by 0.07% for the year-ended October 31, 2012, (see Note B). |
See notes to financial statements.
64 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc. and the Shareholders of AllianceBernstein Intermediate Bond Portfolio
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the AllianceBernstein Intermediate Bond Portfolio (the “Portfolio”) (one of the portfolios constituting the AllianceBernstein Bond Fund, Inc.) as of October 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2012 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Intermediate Bond Portfolio of the AllianceBernstein Bond Fund, Inc. at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 27, 2012
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 65 |
Report of Independent Registered Public Accounting Firm
2012 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended October 31, 2012.
For foreign shareholders, 88.39% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2013.
66 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
2012 Federal Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner, Jr.(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Paul J. DeNoon(2), Vice President Shawn E. Keegan(2) , Vice President Alison M. Martier(2) , Vice President Douglas J. Peebles(2), Vice President | Greg J. Wilensky(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the Adviser’s U.S. Investment Grade Core Fixed Income Team. Mr. Paul J. DeNoon, Mr. Shawn E. Keegan, Ms. Alison M. Martier, Mr. Douglas J. Peebles and Mr. Greg J. Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 67 |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, + 1345 Avenue of the Americas New York, New York 10105 52 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 101 | None |
68 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board 80 (1998) | Investment Adviser and an Independent Consultant since prior to 2007. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 101 | None | |||||
John H. Dobkin, # 70 (1998) | Independent Consultant since prior to 2007. Formerly, President of Save Venice, Inc. (preservation organization) from 2001-2002, Senior Advisor from June 1999-June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 101 | None | |||||
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 69 |
Management of the Fund
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 68 (2005) | Private Investor since prior to 2007. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 101 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2007 and Prospect Acquisition Corp. (financial services) from 2007 until 2009 | |||||
D. James Guzy, # 76 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2007. He was a director of Intel Corporation (semi-conductors) from 1969 until 2008 and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 101 | Cirrus Logic Corporation (semi-conductors) and PLX Technology (semi-conductors) since prior to 2007 and Intel Corporation (semi-conductors) since prior to 2007 until 2008 |
70 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 64 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 101 | None |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 71 |
Management of the Fund
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, # 60 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committee, of the AllianceBernstein Funds since 2008. | 101 | None |
72 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 71 (2005) | Private Investor since prior to 2007. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003-2005, and President and CEO, 2005-2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 101 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2007 | |||||
Earl D. Weiner, # 73 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of the Funds. | 101 | None |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 73 |
Management of the Fund
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
+ | Mr. Keith is an “interested person” of the Fund as defined in the “40 Act”, due to his position as a Senior Vice President of the Adviser. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
74 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Management of the Fund
Officer Information
Certain information concerning the Fund’s Officers is set forth below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 52 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 67 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Paul J. DeNoon 50 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2007. | ||
Shawn E. Keegan 41 | Vice President | Vice President of the Adviser**, with which he has been associated since prior to 2007. | ||
Alison M. Martier 55 | Vice President | Senior Vice President of the Adviser**, with which she has been associated since prior to 2007. | ||
Douglas J. Peebles 47 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2007. | ||
Greg J. Wilensky 45 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2007. | ||
Emilie D. Wrapp 57 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2007. | ||
Joseph J. Mantineo 53 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2007. | ||
Phyllis J. Clarke 51 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2007. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 75 |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and AllianceBernstein Bond Fund, Inc. (the “Fund”) with respect to AllianceBernstein Intermediate Bond Portfolio (the “Portfolio”).2 The evaluation of the Investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Portfolio which was provided to the Directors in connection with their review of the proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Portfolio grows larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Portfolio. |
These factors, with the exception of the first factor, are generally referred to as the “Gartenberg factors,” which were articulated by the United States Court of Appeals for the Second Circuit in 1982. Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (2d Cir. 1982). On March 30, 2010, the Supreme Court held the Gartenberg decision was correct in its basic formulation of what §36(b) requires: to face liability under §36(b), “an investment adviser
1 | The Senior Officer’s fee evaluation was completed on October 25, 2012 and discussed with the Board of Directors on November 6-8, 2012. |
2 | Future references to the Portfolio do not include “AllianceBernstein.” References in the fee summary pertaining to performance and expense ratios refer to the Class A shares of the Portfolio. |
76 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.” Jones v. Harris Associates L.P., 130 S. Ct. 1418 (2010). In Jones, the Court stated the Gartenberg approach fully incorporates the correct understanding of fiduciary duty within the context of section 36(b) and noted with approval that “Gartenberg insists that all relevant circumstances be taken into account” and “uses the range of fees that might result from arm’s length bargaining as the benchmark for reviewing challenged fees.”3
PORTFOLIO ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS
The Adviser proposed that the Portfolio pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser’s settlement with the NYAG in December 2003, is based on a master schedule that contemplates eight categories of funds with almost all funds in each category having the same advisory fee schedule.4
Portfolio | Category | Advisory Fee Based on % of Average Daily Net Assets | Net Assets 09/30/12 ($MM) | |||||
Intermediate Bond Portfolio | Low Risk Income | 45 bp on 1st $2.5 billion 40 bp on next $2.5 billion 35 bp on the balance | $ | 546.0 |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Portfolio. During the Portfolio’s most recently completed fiscal year, the Adviser received $66,498 (0.01% of the Portfolio’s average daily net assets) for such services.
The Adviser agreed to waive that portion of its advisory fees and/or reimburse the Portfolio for that portion of the Portfolio’s total operating expenses to the degree necessary to limit the Portfolio’s expense ratios to the amounts set forth below for the Portfolio’s current fiscal year. The waiver is terminable by the Adviser prior to the Portfolio’s new prospectus date upon at least 60 days written notice. In addition, set forth below are the Portfolio’s gross expense ratios, annualized for the most recent semi-annual period:
The Adviser provided notice to the Directors of its intention to modify the expense limitation undertaking expense levels for the Portfolio to be effective with the Portfolio’s prospectus updates on February 1, 2013. In this regard, the Adviser will raise the cap levels for the Portfolio.
3 | Jones v. Harris at 1427. |
4 | Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser’s settlement with the NYAG. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 77 |
Expense Cap Pursuant to Expense Limitation Undertaking | Gross Expense Ratio5 | Fiscal Year End | ||||||||||||||
Portfolio | Class | Current | Effective 02/01/13 | |||||||||||||
Intermediate Bond Portfolio | Advisor Class A Class B Class C Class R Class K Class I |
| 0.55% 0.85% 1.55% 1.55% 1.05% 0.80% 0.55% |
|
| 0.60% 0.90% 1.60% 1.60% 1.10% 0.85% 0.60% |
|
| 0.69% 0.99% 1.74% 1.70% 1.30% 0.98% 0.66% |
| Oct. 31 (ratios as of Apr. 30, 2012) |
I. | ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Portfolio that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes–Oxley Act of 2002, and coordinating with and monitoring the Portfolio’s third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Portfolio are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, the Adviser is reimbursed for providing some of these services. Also, retail mutual funds managed by the Adviser are widely held and accordingly, servicing the Portfolio’s investors is more time consuming and labor intensive compared to servicing institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly if the Portfolio is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational
damage both by the attendant publicity and outcomes other than complete
5 | Annualized. |
78 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, the Supreme Court has indicated consideration should be given to the advisory fees charged to institutional accounts with a similar investment style as the Portfolio.6 In addition to the AllianceBernstein Institutional fee schedule, set forth below is what would have been the effective advisory fee for the Portfolio had the AllianceBernstein Institutional fee schedule been applicable to the Portfolio versus the Portfolio’s advisory fees based on September 30, 2012 net assets. 7
Portfolio | Net Assets 09/30/12 ($MM) | AllianceBernstein (“AB”) Fee Schedule | Effective AB Inst. Adv. Fee | Portfolio Advisory Fee | ||||||||
Intermediate Bond Portfolio | $546.0 | U.S. Strategic Core Plus Schedule 50 bp on 1st $30 million 20 bp on the balance Minimum Account Size: | 0.216% | 0.450% |
The Adviser manages Sanford C. Bernstein Fund, Inc. (“SCB Fund”), an open-end management investment company. The Intermediate Duration Portfolio of SCB Fund has a similar investment style as the Portfolio. Set forth below is Intermediate Duration Portfolio’s advisory fee schedule and what would have been the effective advisory fee of the Portfolio had the fee schedule of Intermediate Duration Portfolio been applicable to the Portfolio versus the Portfolio’s advisory fees based on September 30, 2012 net assets:
Portfolio | SCB Fund Portfolio | Fee Schedule | SCB Fund Effective Fee | Portfolio Advisory Fee | ||||||||
Intermediate Bond Portfolio | Intermediate Duration Portfolio | 50 bp on 1st $1 billion 45 bp on next $2 billion 40 bp on next $2 billion 35 bp on next $2 billion 30 bp thereafter | 0.500% | 0.450% |
6 | The Supreme Court stated that “courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but the courts must be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v. Harris at 1428. |
7 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule. Discounts that are negotiated vary based upon each client relationship. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 79 |
The adviser also manages the AllianceBernstein Variable Products Series Fund, Inc. (“AVPS”), which is available through variable annuity and variable life contracts offered by other financial institutions and offers policyholders the option to utilize certain AVPS portfolios as the investment option underlying their insurance contracts. Set forth below is the fee schedule of the AVPS portfolio that has a substantially similar investment style as the Portfolio. 8 Also shown is what would have been the effective advisory fee of the Portfolio had the AVPS fee schedule been applicable to the Portfolio and the Portfolio’s advisory fees based on September 30, 2012 net assets:
Portfolio | AVPS Portfolio | Fee Schedule | AVPS Effective Fee | Portfolio Advisory Fee | ||||||||
Intermediate Bond Fund | Intermediate Bond Portfolio | 0.45% on first $2.5 billion 0.40% on next $2.5 billion 0.35% on the balance | 0.450% | 0.450% |
The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fee for the sub-advisory relationship that has a somewhat similar investment style as the Portfolio. Also shown is the Portfolio’s advisory fee and what would have been the effective advisory fee of the Portfolio had the fee schedule of the sub-advisory relationship been applicable to the Portfolio based on September 30, 2012 net assets:
Portfolio | Sub-advised Fund | Sub-advised Fund Fee Schedule | Sub-Advised Management | Portfolio Advisory Fee | ||||||||
Intermediate Bond Portfolio | Client #1 | 0.29% on first $100 million 0.20% thereafter | 0.216% | 0.450% |
It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Portfolio by the Adviser. In addition to the extent that the sub-advisory relationship is with an affiliate of the Adviser, the fee schedule may not reflect arm’s-length bargaining or negotiations.
While it appears that the sub-advisory relationship is paying a lower fee than investment companies managed by the Adviser, it is difficult to evaluate the relevance of such fees due to the differences in the services provided, risks involved
8 | It should be noted that the AVPS portfolio was also affected by the settlement between the Adviser and the NYAG. As a result, the Portfolio has the same breakpoints in its advisory fee schedule as the AVPS portfolio. |
80 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
and other competitive factors between the investment companies and the sub-advisory relationship. There could be various business reasons why an investment adviser would be willing to provide a sub-advised relationship investment related services at a different fee level than an investment company it is sponsoring where the investment adviser is provided all the services, not just investment services, generally required by a registered investment company.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the Adviser, compared the fees charged to the Portfolio with fees charged to other investment companies for similar services offered by other investment advisers.9 Lipper’s analysis included the comparison of the Portfolio’s contractual management fee, estimated at the approximate current asset level of the Portfolio, to the median of the Portfolio’s Lipper Expense Group (“EG”)10 and the Portfolio’s contractual management fee ranking.11
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, expense components and attributes. An EG will typically consist of seven to twenty funds.
Portfolio | Contractual Management Fee (%) | Lipper Expense Median (%) | Rank | |||||||||
Intermediate Bond Portfolio | 0.450 | 0.490 | 4/13 |
9 | The Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since “these comparisons are problematic because these fees, like those challenged, may not be the product of negotiations conducted at arm’s length.” Jones v. Harris at 1429. |
10 | Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes. There are limitations to Lipper expense category data because different funds categorize expenses differently. |
11 | The contractual management fee is calculated by Lipper using the Portfolio’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Portfolio, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” would mean that Portfolio had the lowest effective fee rate in the Lipper peer group. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 81 |
Lipper also compared the Portfolio’s total expense ratio to the medians of the Portfolio’s EG and Lipper Expense Universe (“EU”). The EU12 is a broader group compared to the EG, consisting of all funds that have the same investment classification/objective and load type as the subject Portfolio.
Portfolio | Expense Ratio | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Median (%) | Lipper Rank | |||||||||||||||
Intermediate Bond Portfolio | 0.851 | 0.870 | 6/13 | 0.854 | 35/72 | |||||||||||||||
Pro-forma14 | 0.900 | 0.870 | 9/13 | 0.854 | 47/72 |
Based on this analysis, the Portfolio has a more favorable ranking on a management fee basis than on a total expense ratio basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE ADVISORY FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Portfolio. The Senior Officer has retained an independent consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The profitability information for the Portfolio, prepared by the Adviser for the Board of Directors, was reviewed by the Senior Officer and the independent consultant. The Adviser’s profitability from providing investment advisory services to the Portfolio increased during calendar year 2011 relative to 2010.
In addition to the Adviser’s direct profits from managing the Portfolio, certain of the Adviser’s affiliates have business relationships with the Portfolio and may earn a profit from providing other services to the Portfolio. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that such benefits should be factored into the evaluation of the total relationship between the Portfolio and the Adviser. Neither case law nor common business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and
12 | Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. |
13 | Most recently completed fiscal year Class A share total expense ratio. |
14 | Pro-forma total expense ratio is shown for the Portfolio to reflect the Portfolio’s expense cap level effective February 1, 2013. |
82 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
services are competitive. These affiliates provide transfer agent and distribution related services to the Portfolio and receive transfer agent fees, front-end sales loads, Rule 12b-1 payments and contingent deferred sales charges (“CDSC”). During the Portfolio’s most recently completed fiscal year, ABI received from the Portfolio $10,684, $1,919,856 and $19,110 in front-end sales charges, Rule 12b-1 and CDSC fees, respectively.
AllianceBernstein Investments, Inc. (“ABI”), an affiliate of the Adviser, is the Portfolio’s principal underwriter. ABI and the Adviser have disclosed in the Portfolio’s prospectus that they may make revenue sharing payments from their own resources, in addition to revenues derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Portfolio. In 2011, ABI paid approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $17 million for distribution services and educational support (revenue sharing payments).
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”), the affiliated transfer agent for the Portfolio, are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis. During the Portfolio’s most recently completed fiscal year, ABIS received $500,201 in fees from the Portfolio.
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through pricing to scale, breakpoints, fee reductions/waivers and enhancement to services.
An independent consultant, retained by the Senior Officer, provided the Board of Directors information on the Adviser’s firm-wide average costs from 2005 through 2011 and the potential economies of scale. The independent consultant noted that from 2005 through 2007 the Adviser experienced significant growth in assets under management (“AUM”). During this period, operating expenses increased, in part to keep up with growth, and in part reflecting market returns. However, from 2008 through the first quarter of 2009, AUM rapidly and significantly decreased due to declines in market value and client withdrawals. When AUM rapidly decreased, some operating expenses categories, including base compensation and office space, adjusted more slowly during this period, resulting in an increase in average costs. Since 2009, AUM has experienced less significant changes. The independent consultant noted that changes in operating expenses reflect changes in business composition and business practices in response to changes in financial markets. Finally, the independent consultant concluded that the increase in average cost and the decline in net operating margin across the Adviser since late 2008 are inconsistent with the
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 83 |
view that there are currently reductions in average costs due to economies of scale that can be shared with the AllianceBernstein Mutual Funds managed by the Adviser through lower fees.
Previously in February 2008, the independent consultant provided the Board of Directors an update of the Deli15 study on advisory fees and various fund characteristics.16 The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.17 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund AUM, family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of the fund size and each Adviser’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE PORTFOLIO. |
With assets under management of approximately $419 billion as of September 30, 2012, the Adviser has the investment experience to manage and provide non-investment services (described in Section I) to the Portfolio.
The information below shows the 1, 3, 5 and 10 year performance returns and rankings of the Portfolio18 relative to its Lipper Performance Group (“PG”) and Lipper Performance Universe (“PU”)19 for the periods ended July 31, 2012.20
15 | The Deli study, originally published in 2002 based on 1997 data and updated for the February 2008 Presentation, may be of diminished value due to the age of the data used in the presentation and the changes experienced in the industry over the last four years. |
16 | As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since the fees may not be the product of negotiations conducted at arm’s length. See Jones V. Harris at 1429. |
17 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
18 | The performance returns and rankings are for the Class A shares of the Portfolio. The performance returns of the Portfolios were provided Lipper. |
19 | The Portfolio’s PG is identical to the Portfolio’s EG. The Portfolio’s PU is not identical to the Portfolio’s EU as the criteria for including/excluding a portfolio in/from a PU are somewhat different from that of an EU. |
20 | The current Lipper investment classification/objective dictates the PG and PU throughout the life of the Portfolio even if the Portfolio may have had a different investment classification/objective at different points in time. |
84 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
Portfolio | Portfolio Return (%) | PG Median (%) | PU Median (%) | PG Rank | PU Rank | |||||||||||||||
Intermediate Bond Portfolio | ||||||||||||||||||||
1 year | 6.23 | 7.78 | 7.24 | 13/13 | 73/88 | |||||||||||||||
3 year | 8.65 | 8.26 | 7.92 | 6/13 | 24/80 | |||||||||||||||
5 year | 6.57 | 7.46 | 6.70 | 9/12 | 38/69 | |||||||||||||||
10 year | 5.27 | 5.93 | 5.47 | 8/10 | 32/52 |
Set forth below are the 1, 3, 5, 10 year and since inception net performance returns of the Portfolio (in bold)21 versus its benchmark.22 Portfolio and benchmark volatility and reward-to-variability ratio (“Sharpe Ratio”) information is also shown.23
Periods Ending July 31, 2012 Annualized Performance | ||||||||||||||||||||||||||||||||
Annualized | ||||||||||||||||||||||||||||||||
1 Year (%) | 3 Year (%) | 5 Year (%) | 10 Year (%) | Since Inception (%) | Volatility (%) | Sharpe (%) | Risk Period (Year) | |||||||||||||||||||||||||
Intermediate Bond Portfolio | 6.23 | 8.65 | 6.57 | 5.27 | 5.68 | 4.48 | 0.74 | 10 | ||||||||||||||||||||||||
Barclays Capital U.S. Aggregate Bond Index | 7.25 | 6.85 | 6.91 | 5.65 | 6.26 | 3.62 | 1.01 | 10 | ||||||||||||||||||||||||
Inception Date: July 1, 1999 |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Portfolio is reasonable and within the range of what would have been negotiated at arm’s-length in light of all the surrounding circumstances. This conclusion in respect of the Portfolio is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: December 3, 2012
21 | The performance returns and risk measures shown in the table are for the Class A shares of the Portfolio. |
22 | The Adviser provided Portfolio and benchmark performance return information for the periods through July 31, 2012. |
23 | Portfolio and benchmark volatility and Sharpe Ratio information was obtained through Lipper LANA, a database maintained by Lipper. Volatility is a statistical measure of the tendency of a market price or yield to vary over time. A Sharpe Ratio is a risk adjusted measure of return that divides a fund’s return in excess of the riskless return by the fund’s standard deviation. A portfolio with a greater volatility would be viewed as more risky than a portfolio with equivalent performance but lower volatility; for that reason, a greater return would be demanded for the more risky fund. A portfolio with a higher Sharpe Ratio would be viewed as better performing than a fund with a lower Sharpe Ratio. |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 85 |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies
Balanced Wealth Strategy
Conservative Wealth Strategy
Wealth Appreciation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Conservative Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Asset Allocation/Multi-Asset Funds
Dynamic All Market Fund
Emerging Markets Multi-Asset Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Discovery Growth Fund**
Growth Fund
Large Cap Growth Fund
Select US Equity Portfolio
Small Cap Growth Portfolio
U.S. Strategic Research Portfolio
Global & International
Global Thematic Growth Fund
International Discovery Equity Portfolio
International Focus 40 Portfolio
International Growth Fund
Value Funds
Domestic
Core Opportunities Fund
Discovery Value Fund**
Equity Income Fund
Growth & Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Portfolio California Portfolio High Income Portfolio Massachusetts Portfolio Michigan Portfolio Minnesota Portfolio Municipal Bond Inflation Strategy | National Portfolio New Jersey Portfolio New York Portfolio Ohio Portfolio Pennsylvania Portfolio Virginia Portfolio |
Intermediate Municipal Bond Funds
Intermediate California Portfolio
Intermediate Diversified Portfolio
Intermediate New York Portfolio
Closed-End Funds
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alternatives
Global Risk Allocation Fund**
Market Neutral Strategy-Global
Market Neutral Strategy-U.S.
Real Asset Strategy
Unconstrained Bond Fund
Retirement Strategies
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,* which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
* | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
** | Prior to October 8, 2012, Global Risk Allocation Fund was named Balanced Shares. Prior to November 1, 2012, Discovery Growth Fund was named Small/Mid Cap Growth Fund and Discovery Value Fund was named Small/Mid Cap Value Fund. |
86 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
AllianceBernstein Family of Funds
NOTES
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 87 |
NOTES
88 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
NOTES
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 89 |
NOTES
90 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
NOTES
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO • | 91 |
NOTES
92 | • ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO |
ALLIANCEBERNSTEIN BOND FUND INTERMEDIATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
IB-0151-1012 | ![]() |
ANNUAL REPORT
AllianceBernstein
Bond Inflation Strategy
October 31, 2012
Annual Report
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s website at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 18, 2012
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Bond Inflation Strategy (the “Strategy”) for the annual reporting period ended October 31, 2012.
Investment Objectives and Policies
The Strategy seeks to maximize real return without assuming what AllianceBernstein L.P. (the “Adviser”) considers to be undue risk. Real return is the rate of return after adjusting for inflation.
The Strategy pursues its objective by investing principally in Treasury Inflation-Protected Securities (“TIPS”) directly or by gaining indirect exposure to TIPS through derivatives transactions such as total return swaps linked to TIPS. In deciding whether to take direct or indirect exposure, the Adviser will consider the relative costs and efficiency of each method. In addition, in seeking to maximize real return, the Strategy may invest in other fixed income investments such as U.S. and non-U.S. government securities, corporate fixed-income securities and mortgage-related securities, as well as derivatives linked to such securities. Under normal circumstances, the Strategy invests at least 80% of its net assets in fixed-income securities. While the Strategy expects to invest principally in investment-grade securities, it may invest up to 15% of its total assets in fixed-income securities rated BB or B or the equivalent by at least one national rating agency (or deemed by the Adviser to be of comparable credit quality), which are not investment-grade (“junk bonds”).
Inflation-protected securities are fixed-income securities structured to provide protection against inflation. Their principal value and/or the interest paid on them is adjusted to reflect official inflation measures. The inflation measure for TIPS is the Consumer Price Index for Urban Consumers. The Strategy may also invest in other inflation-indexed securities, issued by both U.S. and non-U.S. issuers, and in derivative instruments linked to these securities.
The Strategy may invest to the extent permitted by applicable law in derivatives, such as options, futures, forwards, or swaps. The Strategy intends to use leverage for investment purposes. To do this, the Strategy expects to enter into (i) reverse repurchase agreement transactions and use the cash made available from these transactions to make additional investments in fixed-income securities in accordance with the Strategy’s investment policies and (ii) total return swaps. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of reverse repurchase agreements, swap agreements and other derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
The Adviser selects securities for purchase or sale based on its assessment of
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 1 |
the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Strategy. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Strategy’s other holdings.
The Strategy may also invest in loan participations, structured securities, asset-backed securities, variable, floating, and inverse floating rate instruments, and preferred stock, and may use other investment techniques. The Strategy may invest in fixed-income securities of any maturity and duration. If the rating of a fixed-income security falls below investment-grade, the Strategy will not be obligated to sell the security and may continue to hold it if, in the Adviser’s opinion, the investment is appropriate under the circumstances.
Investment Results
The table on page 6 shows the Strategy’s performance compared to its benchmark, the Barclays Capital (“BC”) 1-10 year TIPS Index, and to the Lipper TIPS Fund Average (the “Lipper Average”) for the six- and 12-month periods ended October 31, 2012.
During both periods, the Strategy rose in absolute terms and outperformed its benchmark, yet underperformed the Lipper Average, before sales charges. Exposure to investment-grade corporates was a primary positive contributor, followed by exposure to both commercial mortgage-backed securities (“CMBS”) and high-yield corporates. There were no material detractors for both periods.
During both periods, yield curve positioning and duration management had a positive impact on relative performance. The Strategy’s longer-than-benchmark duration positioning and overweight in the 10-year area of the curve, where yields declined most, contributed positively for both periods. Derivatives in the form of Treasury futures and interest rate swaps were utilized in order to manage duration, country exposure and yield curve positioning of the Strategy for both periods.
The Strategy’s overall currency positioning did not have a material impact on performance during either period. The Strategy utilized currency forwards for hedging back currency exposure on non-U.S. dollar positions and to manage currency exposure. The Strategy utilized leverage through reverse repurchase agreements at favorable rates, which contributed positively for both periods. As part of the Strategy’s credit position, credit default swaps were utilized early in the 12-month period to as a substitute for corporate bonds. As market volatility increased during the year, credit default swaps were utilized as a hedge against credit risk. For both periods, the impact of credit default swaps was immaterial.
Market Review and Investment Strategy
Volatility continued throughout the 12-month period ended October 31, 2012, as global markets remained highly correlated with ongoing European debt sentiment and perceptions of the overall health of the global economy. The swings between “risk-on” and “risk off” throughout
2 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
the period reflected uncertainty created by the protracted sovereign debt crisis in Europe, a looming fiscal policy crisis in the U.S., and questions as to whether emerging market economies such as China and Brazil were heading for a hard or soft economic landing.
Investor confidence improved dramatically in the first quarter of 2012, after the European Central Bank (“ECB”) took decisive moves to stem the euro area crisis and after signs of improving economic momentum, particularly in the U.S., buoyed markets. In the second quarter of 2012, however, the pendulum swung back to “risk off” as the European debt crisis intensified, growth in China moderated and the pace of U.S. economic growth showed signs of slowing. Government yields fell dramatically, with U.S. Treasury and German bund yields setting new record lows.
Toward the end of the 12-month period global risk aversion eased once again, prompted by positive central bank policy initiatives. The ECB announced a bond purchase program to support financial market stability in the euro area. Yields on 10-year European government bonds, including those of countries at the center of the sovereign debt crisis, fell. In the U.S., a third round of quantitative easing by the Federal Reserve was also positive for broad-market sentiment. Federal Reserve officials also indicated that the current low-interest-rate regime would likely last until the middle of 2015; previously, it had been expected to run to the end of 2014.
TIPS yields declined across the maturity spectrum during the 12-month period. The rate shift resulted in positive absolute returns with the benchmark returning 5.17%. A high inflation accrual during the 12-month period and a widening of breakeven inflation rates (i.e., the difference between the yield on TIPS and a comparable maturity Treasury bond) resulted in TIPS outperforming Treasuries. TIPS in the 1-10 year maturity range outperformed comparable U.S. Treasuries by approximately 2.5%, as measured within the benchmark.
Despite the volatility, non-government sectors of the U.S. fixed-income market outperformed, as spreads narrowed during the 12-month period. As measured by Barclays Capital, U.S. investment-grade corporate securities returned a solid 10.21%, helped by a rebound in financials. Although spreads narrowed, corporate bonds remain fairly valued, and fundamentals and supply/demand factors remain positive, in the Global Fixed Income Investment Team’s and Global Credit Investment Team’s (the “Teams”) view. In the U.S., company balance sheets remain solid and earnings, although somewhat softer, remain positive. Additionally, non-government net new issuance in 2012 is expected to fall well below the level seen in 2011; in a low-yield environment, this points to continued demand for corporate debt, in the Teams’ view. CMBS securities provided solid returns at 10.74% as measured by Barclays Capital, benefiting from a stabilization of property fundamentals and investor appetite for yield.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 3 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The unmanaged BC 1-10 Year TIPS Index does not reflect fees and expenses associated with the active management of a fund portfolio. The BC 1-10 Year TIPS Index represents the performance of inflation-protected securities issued by the U.S. Treasury. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
Market Risk: The value of the Strategy’s assets will fluctuate as the bond market fluctuates. The value of the Strategy’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Strategy’s assets can decline as can the value of the Strategy’s distributions. This risk is significantly greater for fixed-income securities with longer maturities. Although the Strategy invests principally in inflation-protected securities, the value of its securities may be vulnerable to changes in expectations of inflation or interest rates.
Derivatives Risk: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and may be subject to counterparty risk to a greater degree than more traditional investments.
Foreign (Non-U.S.) Risk: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Strategy’s investments or reduce its returns.
Leverage Risk: To the extent the Strategy uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Strategy’s investments.
Liquidity Risk: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Strategy from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
(Disclosures, Risks and Note about Historical Performance continued on next page)
4 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Disclosures and Risks
DISCLOSURES AND RISKS
(continued from previous page)
Management Risk: The Strategy is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Strategy’s prospectus.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Strategy will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com. For Class 1 shares, click on “Private Clients”, then “Investments”, then “Stocks” or “Bonds”, then “Mutual Fund Performance at a Glance”.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; a 1% 1-year contingent deferred sales charge for Class C shares. Class 1 and Class 2 shares do not carry sales charges. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 5 |
Disclosures and Risks
HISTORICAL PERFORMANCE
THE STRATEGY VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2012 | NAV Returns | |||||||||
6 Months | 12 Months | |||||||||
AllianceBernstein Bond Inflation Strategy | ||||||||||
Class 1* | 3.27% | 6.63% | ||||||||
| ||||||||||
Class 2* | 3.39% | 6.80% | ||||||||
| ||||||||||
Class A | 3.18% | 6.41% | ||||||||
| ||||||||||
Class C | 2.84% | 5.61% | ||||||||
| ||||||||||
Advisor Class** | 3.35% | 6.69% | ||||||||
| ||||||||||
Class R** | 3.09% | 6.18% | ||||||||
| ||||||||||
Class K** | 3.28% | 6.51% | ||||||||
| ||||||||||
Class I** | 3.37% | 6.65% | ||||||||
| ||||||||||
BC 1-10 Year TIPS Index | 2.17% | 5.17% | ||||||||
| ||||||||||
Lipper TIPS Fund Average | 3.58% | 6.87% | ||||||||
| ||||||||||
* Class 1 shares are only available to private clients of Sanford C. Bernstein & Co., LLC. Class 2 shares are only available to private clients of Sanford C. Bernstein & Co., LLC and the Adviser’s institutional clients or through other limited arrangements.
| ||||||||||
** Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. | ||||||||||
GROWTH OF A $10,000 INVESTMENT IN THE FUND
1/26/10* TO 10/31/12
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Bond Inflation Strategy Class A shares (from 1/26/10 to 10/31/12) as compared to the performance of the Strategy’s composite benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Strategy and assumes the reinvestment of dividends and capital gains distributions.
* | Inception date: 1/26/2010. |
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2012 | ||||||||||||
NAV Returns | SEC Returns | SEC Yields‡ | ||||||||||
Class 1 Shares† | 5.74 | % | ||||||||||
1 Year | 6.63 | % | 6.63 | % | ||||||||
Since Inception* | 6.91 | % | 6.91 | % | ||||||||
Class 2 Shares† | 6.17 | % | ||||||||||
1 Year | 6.80 | % | 6.80 | % | ||||||||
Since Inception* | 6.99 | % | 6.99 | % | ||||||||
Class A Shares | 5.18 | % | ||||||||||
1 Year | 6.41 | % | 1.88 | % | ||||||||
Since Inception* | 6.64 | % | 4.99 | % | ||||||||
Class C Shares | 4.69 | % | ||||||||||
1 Year | 5.61 | % | 4.61 | % | ||||||||
Since Inception* | 5.90 | % | 5.90 | % | ||||||||
Advisor Class Shares†† | 5.91 | % | ||||||||||
1 Year | 6.69 | % | 6.69 | % | ||||||||
Since Inception* | 6.98 | % | 6.98 | % | ||||||||
Class R Shares†† | 4.99 | % | ||||||||||
1 Year | 6.18 | % | 6.18 | % | ||||||||
Since Inception* | 6.46 | % | 6.46 | % | ||||||||
Class K Shares†† | 5.30 | % | ||||||||||
1 Year | 6.51 | % | 6.51 | % | ||||||||
Since Inception* | 6.71 | % | 6.71 | % | ||||||||
Class I Shares†† | 5.64 | % | ||||||||||
1 Year | 6.65 | % | 6.65 | % | ||||||||
Since Inception* | 6.98 | % | 6.98 | % |
The Strategy’s prospectus fee table shows the Strategy’s total annual operating expense ratios as 1.20%, 1.84%, 1.87%, 2.84%, 1.80%, 2.16%, 2.39% and 1.90% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expenses (exclusive of interest expense) to 0.55%, 0.45%, 0.75%, 1.45%, 0.45%, 0.95%, 0.70% and 0.45% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. These waivers/reimbursements extend through January 31, 2013 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
‡ | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 2012. |
† | Class 1 shares are only available to private clients of Sanford C. Bernstein & Co., LLC. Class 2 shares are only available to private clients of Sanford C. Bernstein & Co., LLC and the Adviser’s institutional clients or through other limited arrangements. These share classes do not carry front end sales charges; therefore their respective NAV and SEC returns are the same. |
* | Inception date: 1/26/2010. |
†† | These share classes are offered at NAV to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. The inception date for these share classes are listed above. |
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2012) | ||||
SEC Returns | ||||
Class 1 Shares† | ||||
1 Year | 7.68 | % | ||
Since Inception* | 6.92 | % | ||
Class 2 Shares† | ||||
1 Year | 7.77 | % | ||
Since Inception* | 6.97 | % | ||
Class A Shares | ||||
1 Year | 2.88 | % | ||
Since Inception* | 4.95 | % | ||
Class C Shares | ||||
1 Year | 5.74 | % | ||
Since Inception* | 5.88 | % | ||
Advisor Class Shares†† | ||||
1 Year | 7.76 | % | ||
Since Inception* | 6.96 | % | ||
Class R Shares†† | ||||
1 Year | 7.31 | % | ||
Since Inception* | 6.46 | % | ||
Class K Shares†† | ||||
1 Year | 7.60 | % | ||
Since Inception* | 6.72 | % | ||
Class I Shares†† | ||||
1 Year | 7.82 | % | ||
Since Inception* | 6.99 | % |
† | Class 1 shares are only available to private clients of Sanford C. Bernstein & Co., LLC. Class 2 shares are only available to private clients of Sanford C. Bernstein & Co., LLC and the Adviser’s institutional clients or through other limited arrangements. |
* | Inception date: 1/26/2010. |
†† | These share classes are offered at NAV to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker- dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. The inception date for these share classes are listed above. |
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
8 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2012 | Ending Account Value October 31, 2012 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,031.80 | $ | 4.24 | 0.83 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.96 | $ | 4.22 | 0.83 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,028.40 | $ | 7.80 | 1.53 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.44 | $ | 7.76 | 1.53 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,033.50 | $ | 2.71 | 0.53 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.47 | $ | 2.69 | 0.53 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,030.90 | $ | 5.26 | 1.03 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.96 | $ | 5.23 | 1.03 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,032.80 | $ | 3.99 | 0.78 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.22 | $ | 3.96 | 0.78 | % |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 9 |
Fund Expenses
Beginning Account Value May 1, 2012 | Ending Account Value October 31, 2012 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,033.70 | $ | 2.71 | 0.53 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.47 | $ | 2.69 | 0.53 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,032.70 | $ | 3.22 | 0.63 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.97 | $ | 3.20 | 0.63 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,033.90 | $ | 2.71 | 0.53 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.47 | $ | 2.69 | 0.53 | % |
* | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
10 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2012 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $275.0
Total Investments ($mil): $347.9
INFLATION PROTECTION BREAKDOWN* | ||||||
U.S. Inflation-Protected Exposure | 98.9 | % | ||||
Non-U.S. | — | |||||
Non-Inflation Exposure | 1.1 | % | ||||
|
| |||||
100.0 | % |
SECTOR BREAKDOWN OF NET PORTFOLIO ASSETS, EXCLUDING TREASURY SECURITIES, TIPS, INTEREST RATE DERIVATIVES AND NET CASH EQUIVALENTS* | ||||||
Corporates – Investment Grades | 16.8 | % | ||||
Asset-Backed Securities | 5.5 | % | ||||
Commercial Mortgage-Backed Securities | 4.5 | % | ||||
Mortgage Pass-Throughs | 2.1 | % | ||||
Corporates – Non-Investment Grades | 1.0 | % | ||||
Agencies | 0.7 | % | ||||
Quasi-Sovereigns | 0.6 | % | ||||
Governments – Sovereign Bonds | 0.2 | % |
SECTOR BREAKDOWN OF TOTAL PORTFOLIO INVESTMENTS, EXCLUDING DERIVATIVES** | ||||||
Inflation-Linked Securities | 78.2 | % | ||||
Corporates – Investment Grades | 10.5 | % | ||||
Asset-Backed Securities | 4.4 | % | ||||
Commercial Mortgage-Backed Securities | 3.5 | % | ||||
Mortgage Pass-Throughs | 1.7 | % | ||||
Corporates – Non-Investment Grades | 0.5 | % | ||||
Agencies | 0.5 | % | ||||
Quasi-Sovereigns | 0.5 | % | ||||
Governments – Sovereign Bonds | 0.2 | % |
* | All data are as of October 31, 2012. The Strategy’s sector and inflation protection exposure breakdowns are expressed as an approximate percentage of the Strategy’s total net assets (and may vary over time) inclusive of derivative exposure except as noted, based on the Adviser’s internal classification. |
** | The Strategy’s sector breakdown is expressed, based on the Adviser’s internal classification, as a percentage of total investments and may vary over time. The Strategy also enters into derivative transactions (not reflected in the table), which may be used for hedging or investment purposes or to adjust the risk profile or exposures of the Strategy (see “Portfolio of Investments” section of the report for additional details). Derivative transactions may result in a form of leverage for the Strategy. The Strategy uses leverage for investment purposes by entering into reverse repurchase agreements. As a result, the Strategy’s total investments will generally exceed its net assets. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 11 |
Portfolio Summary
PORTFOLIO OF INVESTMENTS
October 31, 2012
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
INFLATION-LINKED SECURITIES – 98.9% | ||||||||||
United States – 98.9% | ||||||||||
U.S. Treasury Inflation Index | U.S.$ | 31,205 | $ | 34,147,409 | ||||||
0.625%, 7/15/21 (TIPS) | 21,804 | 24,948,486 | ||||||||
1.125%, 1/15/21 (TIPS) | 2,822 | 3,337,156 | ||||||||
1.25%, 7/15/20 (TIPS)(a) | 19,698 | 23,491,112 | ||||||||
1.375%, 7/15/18-1/15/20 (TIPS) | 18,411 | 21,623,975 | ||||||||
1.625%, 1/15/15-1/15/18 (TIPS)(a) | 11,030 | 11,973,891 | ||||||||
1.875%, 7/15/13 (TIPS) | 4,584 | 4,688,374 | ||||||||
1.875%, 7/15/15-7/15/19 (TIPS)(a) | 27,785 | 31,511,560 | ||||||||
2.00%, 7/15/14 (TIPS)(a) | 43,655 | 46,246,887 | ||||||||
2.00%, 1/15/16 (TIPS) | 4,480 | 4,982,864 | ||||||||
2.125%, 1/15/19 (TIPS) | 4,839 | 5,914,322 | ||||||||
2.375%, 1/15/17-1/15/25 (TIPS) | 5,906 | 6,959,196 | ||||||||
2.50%, 7/15/16 (TIPS) | 14,953 | 17,241,214 | ||||||||
2.625%, 7/15/17 (TIPS)(a) | 29,146 | 35,009,302 | ||||||||
|
| |||||||||
Total Inflation-Linked Securities | 272,075,748 | |||||||||
|
| |||||||||
CORPORATES - INVESTMENT GRADES – 13.3% | ||||||||||
Industrial – 7.0% | ||||||||||
Basic – 0.6% | ||||||||||
Alcoa, Inc. | 265 | 274,324 | ||||||||
AngloGold Ashanti Holdings PLC | 225 | 236,808 | ||||||||
ArcelorMittal | 110 | 106,210 | ||||||||
6.125%, 6/01/18 | 100 | 99,669 | ||||||||
Dow Chemical Co. (The) | 185 | 211,596 | ||||||||
7.60%, 5/15/14 | 25 | 27,562 | ||||||||
8.55%, 5/15/19 | 67 | 90,859 | ||||||||
Vale SA | 595 | 637,425 | ||||||||
|
| |||||||||
1,684,453 | ||||||||||
|
| |||||||||
Capital Goods – 0.3% | ||||||||||
ADT Corp. (The) | 129 | 131,271 | ||||||||
CRH America, Inc. | 230 | 253,714 | ||||||||
Embraer SA | 147 | 160,671 | ||||||||
Republic Services, Inc. | 8 | 8,854 | ||||||||
5.25%, 11/15/21 | 150 | 179,320 | ||||||||
|
| |||||||||
733,830 | ||||||||||
|
|
12 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Communications - Media – 1.3% | ||||||||||
CBS Corp. | U.S.$ | 137 | $ | 143,991 | ||||||
5.75%, 4/15/20 | 325 | 392,463 | ||||||||
8.875%, 5/15/19 | 25 | 34,406 | ||||||||
Comcast Corp. | 210 | 254,270 | ||||||||
DirecTV Holdings LLC/DirecTV Financing | 280 | 291,738 | ||||||||
4.60%, 2/15/21 | 140 | 155,158 | ||||||||
Globo Comunicacao e Participacoes SA | 215 | 237,037 | ||||||||
NBCUniversal Media LLC | 205 | 234,709 | ||||||||
News America, Inc. | 331 | 420,026 | ||||||||
Omnicom Group, Inc. | 163 | 174,334 | ||||||||
Reed Elsevier Capital, Inc. | 460 | 616,471 | ||||||||
Time Warner Cable, Inc. | 180 | 200,802 | ||||||||
5.00%, 2/01/20 | 35 | 41,201 | ||||||||
7.50%, 4/01/14 | 70 | 76,557 | ||||||||
8.75%, 2/14/19 | 25 | 34,360 | ||||||||
WPP Finance 2010 | 227 | 249,091 | ||||||||
|
| |||||||||
3,556,614 | ||||||||||
|
| |||||||||
Communications - | ||||||||||
American Tower Corp. | 395 | 436,328 | ||||||||
5.05%, 9/01/20 | 35 | 39,329 | ||||||||
AT&T, Inc. | 215 | 228,504 | ||||||||
5.35%, 9/01/40 | 280 | 343,411 | ||||||||
Bell Canada | CAD | 25 | 26,276 | |||||||
British Telecommunications PLC | U.S.$ | 208 | 213,346 | |||||||
5.95%, 1/15/18 | 316 | 379,421 | ||||||||
Deutsche Telekom International Finance BV | 425 | 462,946 | ||||||||
8.75%, 6/15/30 | 150 | 231,492 | ||||||||
Koninklijke KPN NV | EUR | 50 | 64,871 | |||||||
Telecom Italia Capital SA | U.S.$ | 170 | 195,075 |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 13 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Telefonica Emisiones SAU | U.S.$ | 165 | $ | 167,681 | ||||||
United States Cellular Corp. | 110 | 115,300 | ||||||||
Verizon Communications, Inc. | 300 | 462,011 | ||||||||
Vodafone Group PLC | 335 | 460,240 | ||||||||
|
| |||||||||
3,826,231 | ||||||||||
|
| |||||||||
Consumer Cyclical - Automotive – 0.2% | ||||||||||
Ford Motor Credit Co. LLC | 440 | 485,339 | ||||||||
Harley-Davidson Funding Corp. | 30 | 32,966 | ||||||||
|
| |||||||||
518,305 | ||||||||||
|
| |||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||
Marriott International, Inc./DE | 263 | 268,934 | ||||||||
Series J | 125 | 126,588 | ||||||||
|
| |||||||||
395,522 | ||||||||||
|
| |||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||
Macy’s Retail Holdings, Inc. | 410 | 450,584 | ||||||||
|
| |||||||||
Consumer Non-Cyclical – 0.8% | ||||||||||
Ahold Finance USA LLC | 25 | 32,153 | ||||||||
Altria Group, Inc. | 195 | 225,887 | ||||||||
Bunge Ltd. Finance Corp. | 125 | 134,497 | ||||||||
8.50%, 6/15/19 | 75 | 96,773 | ||||||||
Delhaize Group SA | 205 | 214,575 | ||||||||
Kroger Co. (The) | 414 | 441,774 | ||||||||
Laboratory Corp. of America Holdings | 116 | 119,555 | ||||||||
Reynolds American, Inc. | 284 | 287,245 | ||||||||
Tyson Foods, Inc. | 430 | 455,800 | ||||||||
Watson Pharmaceuticals, Inc. | 215 | 221,555 | ||||||||
|
| |||||||||
2,229,814 | ||||||||||
|
|
14 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Energy – 1.1% | ||||||||||
Encana Corp. | U.S.$ | 430 | $ | 463,723 | ||||||
Marathon Petroleum Corp. | 9 | 9,643 | ||||||||
5.125%, 3/01/21 | 265 | 312,472 | ||||||||
Nabors Industries, Inc. | 175 | 234,799 | ||||||||
Noble Energy, Inc. | 127 | 139,995 | ||||||||
8.25%, 3/01/19 | 175 | 232,219 | ||||||||
Phillips 66 | 435 | 487,931 | ||||||||
Southwestern Energy Co. | 118 | 127,660 | ||||||||
Transocean, Inc. | 263 | 266,361 | ||||||||
Valero Energy Corp. | 211 | 260,627 | ||||||||
Weatherford International Ltd./Bermuda 5.125%, 9/15/20 | 305 | 339,545 | ||||||||
9.625%, 3/01/19 | 70 | 92,737 | ||||||||
|
| |||||||||
2,967,712 | ||||||||||
|
| |||||||||
Technology – 0.7% | ||||||||||
Agilent Technologies, Inc. | 7 | 8,103 | ||||||||
Hewlett-Packard Co. | 165 | 165,163 | ||||||||
Intel Corp. | 225 | 265,846 | ||||||||
Motorola Solutions, Inc. | 320 | 332,858 | ||||||||
7.50%, 5/15/25 | 195 | 260,908 | ||||||||
Oracle Corp. | 205 | 235,655 | ||||||||
Telefonaktiebolaget LM Ericsson | 495 | 519,632 | ||||||||
Xerox Corp. | 74 | 76,248 | ||||||||
8.25%, 5/15/14 | 195 | 215,576 | ||||||||
|
| |||||||||
2,079,989 | ||||||||||
|
| |||||||||
Transportation - Airlines – 0.0% | ||||||||||
Southwest Airlines Co. | 35 | 37,432 | ||||||||
|
| |||||||||
Transportation - Railroads – 0.2% | ||||||||||
CSX Corp. | 400 | 447,277 | ||||||||
|
|
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 15 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Transportation - Services – 0.1% | ||||||||||
Asciano Finance Ltd. | U.S.$ | 47 | $ | 50,658 | ||||||
Ryder System, Inc. | 105 | 108,625 | ||||||||
5.85%, 11/01/16 | 105 | 119,494 | ||||||||
7.20%, 9/01/15 | 10 | 11,530 | ||||||||
|
| |||||||||
290,307 | ||||||||||
|
| |||||||||
19,218,070 | ||||||||||
|
| |||||||||
Financial Institutions – 4.2% | ||||||||||
Banking – 2.3% | ||||||||||
Bank of America Corp. | 90 | 101,527 | ||||||||
Bank of Scotland PLC | EUR | 50 | 66,577 | |||||||
Barclays Bank PLC | 370 | 524,953 | ||||||||
BBVA US Senior SAU | U.S.$ | 265 | 265,057 | |||||||
Capital One Financial Corp. | 265 | 304,050 | ||||||||
5.25%, 2/21/17 | 150 | 170,857 | ||||||||
Citigroup, Inc. | 651 | 718,670 | ||||||||
5.375%, 8/09/20 | 143 | 167,259 | ||||||||
DNB Bank ASA | 450 | 474,547 | ||||||||
Fifth Third Bancorp | 166 | 176,048 | ||||||||
Goldman Sachs Group, Inc. (The) | 240 | 278,610 | ||||||||
6.00%, 6/15/20 | 120 | 140,886 | ||||||||
HSBC Holdings PLC | 225 | 246,478 | ||||||||
5.10%, 4/05/21 | 180 | 212,237 | ||||||||
ING Bank NV | 600 | 600,278 | ||||||||
JPMorgan Chase & Co. | 55 | 60,661 | ||||||||
4.40%, 7/22/20 | 105 | 116,687 | ||||||||
4.50%, 1/24/22 | 365 | 412,375 | ||||||||
Macquarie Group Ltd. | 65 | 76,785 | ||||||||
Morgan Stanley | 45 | 48,699 | ||||||||
Series G | 456 | 506,810 |
16 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
National Capital Trust II | U.S.$ | 45 | $ | 45,472 | ||||||
UBS AG/Stamford CT | 465 | 501,459 | ||||||||
Vesey Street Investment Trust I | 191 | 206,967 | ||||||||
|
| |||||||||
6,423,949 | ||||||||||
|
| |||||||||
Finance – 0.2% | ||||||||||
SLM Corp. | 265 | 292,162 | ||||||||
Series A | 155 | 155,648 | ||||||||
|
| |||||||||
447,810 | ||||||||||
|
| |||||||||
Insurance – 1.4% | ||||||||||
Allstate Corp. (The) | 37 | 38,341 | ||||||||
American International Group, Inc. | 325 | 366,542 | ||||||||
6.40%, 12/15/20 | 205 | 251,760 | ||||||||
Coventry Health Care, Inc. | 415 | 485,257 | ||||||||
Hartford Financial Services Group, Inc. | 275 | 313,137 | ||||||||
5.50%, 3/30/20 | 24 | 27,807 | ||||||||
6.10%, 10/01/41 | 165 | 200,289 | ||||||||
Humana, Inc. | 40 | 45,639 | ||||||||
7.20%, 6/15/18 | 155 | 191,860 | ||||||||
Lincoln National Corp. | 175 | 231,733 | ||||||||
Markel Corp. | 189 | 229,571 | ||||||||
Marsh & McLennan Cos., Inc. | 207 | 222,230 | �� | |||||||
MetLife, Inc. | 90 | 111,485 | ||||||||
7.717%, 2/15/19 | 180 | 237,476 | ||||||||
Nationwide Financial Services, Inc. | 165 | 173,855 | ||||||||
Nationwide Mutual Insurance Co. | 125 | 181,207 | ||||||||
WellPoint, Inc. | 212 | 219,290 | ||||||||
XL Group PLC | 151 | 160,647 | ||||||||
|
| |||||||||
3,688,126 | ||||||||||
|
|
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 17 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Other Finance – 0.0% | ||||||||||
ORIX Corp. | U.S.$ | 37 | $ | 39,292 | ||||||
|
| |||||||||
REITS – 0.3% | ||||||||||
HCP, Inc. | 394 | 456,045 | ||||||||
Health Care REIT, Inc. | 410 | 468,188 | ||||||||
|
| |||||||||
924,233 | ||||||||||
|
| |||||||||
11,523,410 | ||||||||||
|
| |||||||||
Utility – 1.9% | ||||||||||
Electric – 0.5% | ||||||||||
Allegheny Energy Supply Co. LLC | 130 | 143,788 | ||||||||
Constellation Energy Group, Inc. | 91 | 106,957 | ||||||||
FirstEnergy Solutions Corp. | 80 | 92,444 | ||||||||
6.80%, 8/15/39 | 80 | 93,425 | ||||||||
MidAmerican Energy Holdings Co. | 340 | 447,018 | ||||||||
Nisource Finance Corp. | 95 | 116,930 | ||||||||
6.15%, 3/01/13 | 57 | 57,955 | ||||||||
6.80%, 1/15/19 | 75 | 91,824 | ||||||||
Ohio Power Co. | 16 | 16,222 | ||||||||
Pacific Gas & Electric Co. | 160 | 179,495 | ||||||||
TECO Finance, Inc. | 45 | 48,267 | ||||||||
|
| |||||||||
1,394,325 | ||||||||||
|
| |||||||||
Natural Gas – 1.4% | ||||||||||
DCP Midstream LLC | 405 | 431,109 | ||||||||
9.75%, 3/15/19(b) | 20 | 26,156 | ||||||||
Energy Transfer Partners LP | 150 | 165,620 | ||||||||
6.125%, 2/15/17 | 145 | 169,758 | ||||||||
Enterprise Products Operating LLC | 145 | 175,103 | ||||||||
EQT Corp. | 370 | 400,564 | ||||||||
8.125%, 6/01/19 | 62 | 77,726 | ||||||||
Kinder Morgan Energy Partners LP | 321 | 350,792 | ||||||||
4.15%, 3/01/22 | 104 | 114,853 |
18 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
ONEOK, Inc. | U.S.$ | 425 | $ | 469,886 | ||||||
Spectra Energy Capital LLC | 265 | 322,675 | ||||||||
8.00%, 10/01/19 | 25 | 33,415 | ||||||||
Talent Yield Investments Ltd. | 480 | 523,017 | ||||||||
Williams Partners LP | 400 | 470,997 | ||||||||
|
| |||||||||
3,731,671 | ||||||||||
|
| |||||||||
5,125,996 | ||||||||||
|
| |||||||||
Non Corporate Sectors – 0.2% | ||||||||||
Agencies - Not Government Guaranteed – 0.2% | ||||||||||
Gazprom OAO Via Gaz Capital SA | 320 | 356,550 | ||||||||
Petrobras International Finance Co. – Pifco | 270 | 311,440 | ||||||||
|
| |||||||||
667,990 | ||||||||||
|
| |||||||||
Total Corporates - Investment Grades | 36,535,466 | |||||||||
|
| |||||||||
ASSET-BACKED SECURITIES – 5.5% | ||||||||||
Autos - Fixed Rate – 3.2% | ||||||||||
AmeriCredit Automobile Receivables Trust | 369 | 369,310 | ||||||||
Series 2011-4, Class A2 | 110 | 109,846 | ||||||||
Series 2012-3, Class A3 | 655 | 659,018 | ||||||||
Series 2012-4, Class A2 | 880 | 880,225 | ||||||||
Avis Budget Rental Car Funding AESOP LLC | 420 | 427,261 | ||||||||
Bank of America Auto Trust | 380 | 384,463 | ||||||||
CarMax Auto Owner Trust | 171 | 172,247 | ||||||||
Exeter Automobile Receivables Trust | 225 | 226,560 | ||||||||
Series 2012-2A, Class A | 557 | 556,544 |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 19 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Ford Credit Auto Lease Trust | U.S.$ | 97 | $ | 97,346 | ||||||
Series 2011-B, Class A2 | 320 | 320,402 | ||||||||
Ford Credit Floorplan Master Owner Trust Series 2012-4, Class A1 | 1,350 | 1,350,966 | ||||||||
Huntington Auto Trust | 187 | 188,029 | ||||||||
Hyundai Auto Lease Securitization Trust | 39 | 39,107 | ||||||||
Hyundai Auto Receivables Trust | 165 | 165,672 | ||||||||
Mercedes-Benz Auto Lease Trust | 302 | 302,003 | ||||||||
Navistar Financial Corp. Owner Trust | 665 | 665,858 | ||||||||
Nissan Auto Lease Trust | 400 | 400,942 | ||||||||
Porsche Innovative Lease Owner Trust | 450 | 451,185 | ||||||||
Santander Drive Auto Receivables Trust | 595 | 595,197 | ||||||||
SMART Trust/Australia | 112 | 111,878 | ||||||||
Series 2012-4US, Class A2A | 395 | 395,146 | ||||||||
|
| |||||||||
8,869,205 | ||||||||||
|
| |||||||||
Credit Cards - Floating Rate – 0.8% | ||||||||||
American Express Credit Account Master Trust Series 2011-1, Class A | 680 | 681,487 | ||||||||
Discover Card Master Trust | 530 | 532,074 | ||||||||
Penarth Master Issuer PLC | 480 | 480,224 |
20 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Series 2012-1A, Class A1 | U.S.$ | 514 | $ | 514,495 | ||||||
|
| |||||||||
2,208,280 | ||||||||||
|
| |||||||||
Credit Cards - Fixed Rate – 0.6% | ||||||||||
GE Capital Credit Card Master Note Trust | 645 | 649,828 | ||||||||
Series 2012-7, Class A | 555 | 554,852 | ||||||||
World Financial Network Credit Card | 370 | 371,730 | ||||||||
|
| |||||||||
1,576,410 | ||||||||||
|
| |||||||||
Autos - Floating Rate – 0.4% | ||||||||||
BMW Floorplan Master Owner Trust | 809 | 809,352 | ||||||||
Hyundai Floorplan Master Owner Trust | 160 | 160,070 | ||||||||
|
| |||||||||
969,422 | ||||||||||
|
| |||||||||
Other ABS - Fixed Rate – 0.3% | ||||||||||
CIT Canada Equipment Receivables Trust Series 2012-1A, Class A1 | CAD | 194 | 193,836 | |||||||
CIT Equipment Collateral | U.S.$ | 262 | 262,555 | |||||||
CNH Equipment Trust | 340 | 342,762 | ||||||||
GE Equipment Midticket LLC | 145 | 145,598 | ||||||||
|
| |||||||||
944,751 | ||||||||||
|
| |||||||||
Other ABS - Floating Rate – 0.2% | ||||||||||
GE Dealer Floorplan Master Note Trust | 600 | 602,871 | ||||||||
|
| |||||||||
Total Asset-Backed Securities | 15,170,939 | |||||||||
|
|
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 21 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
COMMERCIAL MORTGAGE-BACKED | ||||||||||
Non-Agency Fixed Rate CMBS – 4.0% | ||||||||||
Banc of America Merrill Lynch Commercial Mortgage, Inc. | U.S.$ | 990 | $ | 1,127,590 | ||||||
Series 2007-5, Class A4 | 1,000 | 1,163,926 | ||||||||
Bear Stearns Commercial Mortgage Securities Series 2006-PW12, Class A4 | 75 | 86,086 | ||||||||
Commercial Mortgage Pass | 55 | 63,242 | ||||||||
Credit Suisse First Boston Mortgage | 380 | 411,342 | ||||||||
CW Capital Cobalt Ltd. | 895 | 1,048,573 | ||||||||
Greenwich Capital Commercial Funding Corp. Series 2005-GG3, Class A4 | 530 | 569,834 | ||||||||
Series 2007-GG9, Class A4 | 760 | 875,476 | ||||||||
GS Mortgage Securities Corp. II | 19 | 19,081 | ||||||||
Series 2012-GCJ7, Class A4 | 1,000 | 1,082,254 | ||||||||
JP Morgan Chase Commercial Mortgage Securities Corp. | 503 | 578,768 | ||||||||
Series 2006-CB16, Class A4 | 80 | 92,329 | ||||||||
Series 2007-LD11, Class A4 | 885 | 1,036,279 | ||||||||
Series 2007-LDPX, Class A3 | 435 | 503,718 | ||||||||
Series 2010-C2, Class A1 | 374 | 390,802 | ||||||||
LB-UBS Commercial Mortgage Trust | 70 | 74,648 |
22 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Series 2006-C1, Class A4 | U.S.$ | 38 | $ | 43,030 | ||||||
Series 2006-C4, Class A4 | 60 | 69,402 | ||||||||
Series 2007-C1, Class A4 | 1,100 | 1,280,603 | ||||||||
Merrill Lynch Mortgage Trust | 281 | 286,730 | ||||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | 25 | 28,832 | ||||||||
Series 2007-9, Class A4 | 125 | 146,727 | ||||||||
|
| |||||||||
10,979,272 | ||||||||||
|
| |||||||||
Non-Agency Floating Rate CMBS – 0.5% | ||||||||||
Wachovia Bank Commercial Mortgage Trust Series 2006-WL7A, Class A2 | 1,400 | 1,352,988 | ||||||||
|
| |||||||||
Total Commercial Mortgage-Backed Securities (cost $11,774,526) | 12,332,260 | |||||||||
|
| |||||||||
MORTGAGE PASS-THROUGHS – 2.1% | ||||||||||
Agency Fixed Rate 30-Year – 1.9% | ||||||||||
Federal National Mortgage Association | 4,838 | 5,380,333 | ||||||||
|
| |||||||||
Agency ARMs – 0.2% | ||||||||||
Federal Home Loan Mortgage Corp. | 478 | 510,427 | ||||||||
|
| |||||||||
Total Mortgage Pass-Throughs | 5,890,760 | |||||||||
|
| |||||||||
CORPORATES - NON-INVESTMENT GRADES – 0.7% | ||||||||||
Industrial – 0.6% | ||||||||||
Basic – 0.2% | ||||||||||
LyondellBasell Industries NV | 405 | 468,787 | ||||||||
|
| |||||||||
Capital Goods – 0.2% | ||||||||||
B/E Aerospace, Inc. | 260 | 271,050 | ||||||||
Ball Corp. | 255 | 269,025 | ||||||||
|
| |||||||||
540,075 | ||||||||||
|
|
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 23 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||
Host Hotels & Resorts LP | U.S.$ | 175 | $ | 193,375 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas | 260 | 268,450 | ||||||||
|
| |||||||||
461,825 | ||||||||||
|
| |||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||
Dollar General Corp. | 94 | 98,230 | ||||||||
|
| |||||||||
Energy – 0.1% | ||||||||||
Cimarex Energy Co. | 134 | 143,045 | ||||||||
|
| |||||||||
1,711,962 | ||||||||||
|
| |||||||||
Utility – 0.1% | ||||||||||
Electric – 0.1% | ||||||||||
CMS Energy Corp. | 144 | 160,855 | ||||||||
|
| |||||||||
Total Corporates - Non-Investment Grades | 1,872,817 | |||||||||
|
| |||||||||
AGENCIES – 0.7% | ||||||||||
Agency Debentures – 0.7% | ||||||||||
Federal Home Loan Mortgage Corp. | 1,761 | 1,845,560 | ||||||||
|
| |||||||||
QUASI-SOVEREIGNS – 0.6% | ||||||||||
Quasi-Sovereign Bonds – 0.6% | ||||||||||
Indonesia – 0.2% | ||||||||||
Perusahaan Listrik Negara PT | 355 | 400,262 | ||||||||
|
| |||||||||
Kazakhstan – 0.1% | ||||||||||
KazMunayGas National Co. | 324 | 398,125 | ||||||||
|
| |||||||||
Malaysia – 0.1% | ||||||||||
Petronas Capital Ltd. | 310 | 371,181 | ||||||||
|
| |||||||||
South Korea – 0.2% | ||||||||||
Korea National Oil Corp. | 450 | 472,922 | ||||||||
|
| |||||||||
Total Quasi-Sovereigns | 1,642,490 | |||||||||
|
|
24 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||||
|
|
| ||||||||
GOVERNMENTS - SOVEREIGN | ||||||||||
Poland – 0.0% | ||||||||||
Poland Government International Bond | U.S.$ | 16 | $ | 17,144 | ||||||
|
| |||||||||
Qatar – 0.2% | ||||||||||
State of Qatar | 360 | 412,200 | ||||||||
|
| |||||||||
Russia – 0.0% | ||||||||||
Russian Foreign Bond - Eurobond | 74 | 93,231 | ||||||||
|
| |||||||||
Total Governments - Sovereign Bonds | 522,575 | |||||||||
|
| |||||||||
Total Investments – 126.5% | 347,888,615 | |||||||||
Other assets less liabilities – (26.5)% | (72,894,588 | ) | ||||||||
|
| |||||||||
Net Assets – 100.0% | $ | 274,994,027 | ||||||||
|
|
FUTURES CONTRACTS (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at October 31, 2012 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Sold Contracts | ||||||||||||||||||||
U.S. T-Bond | 23 | December 2012 | $ | 3,432,711 | $ | 3,434,187 | $ | (1,476 | ) | |||||||||||
U.S. T-Note | 25 | December 2012 | 5,510,896 | 5,508,203 | 2,693 | |||||||||||||||
U.S. T-Note | 15 | December 2012 | 1,861,733 | 1,863,750 | (2,017 | ) | ||||||||||||||
U.S. T-Note | 102 | December 2012 | 13,512,441 | 13,569,188 | (56,747 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | (57,547 | ) | ||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
State Street Bank & Trust Co. | CAD | 1,615 | USD | 1,640 | 11/09/12 | $ | 22,690 | |||||||||||||||||
State Street Bank & Trust Co. | USD | 31 | CAD | 30 | 11/09/12 | (144 | ) | |||||||||||||||||
State Street Bank & Trust Co. | JPY | 218,667 | USD | 2,766 | 11/16/12 | 26,291 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 1,402 | MXN | 18,078 | 12/05/12 | (25,091 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 2,633 | USD | 3,436 | 12/06/12 | 21,717 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | 45,463 | |||||||||||||||||||||||
|
|
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 25 |
Portfolio of Investments
INTEREST RATE SWAP CONTRACTS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Barclays Bank PLC | $ | 7,310 | 6/7/13 | 0.627 | % | 3 Month LIBOR | $ | (26,600 | ) | |||||||||||
Barclays Bank PLC | 1,000 | 11/17/13 | 1.059 | % | 3 Month LIBOR | (11,466 | ) | |||||||||||||
Barclays Bank PLC | 850 | 1/17/22 | 2.05 | % | 3 Month LIBOR | (37,561 | ) | |||||||||||||
JPMorgan Chase Bank NA | 7,780 | 10/13/13 | 0.687 | % | 3 Month LIBOR | (27,725 | ) | |||||||||||||
Morgan Stanley Capital Services Inc. | 9,790 | 3/12/14 | 0.563 | % | 3 Month LIBOR | (30,155 | ) | |||||||||||||
Morgan Stanley Capital Services Inc. | 1,100 | 2/21/42 | 2.813 | % | 3 Month LIBOR | (58,535 | ) | |||||||||||||
Morgan Stanley Capital Services Inc. | 830 | 3/6/42 | 2.804 | % | 3 Month LIBOR | (41,816 | ) | |||||||||||||
|
| |||||||||||||||||||
$ | (233,858 | ) | ||||||||||||||||||
|
|
CREDIT DEFAULT SWAP CONTRACTS (see Note D)
SwapCounterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at October 31, 2012 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Bank of America NA: | ||||||||||||||||||||||||
CDX-NAHYS19V1- | 5.00 | % | 5.17 | % | $ | 800 | $ | (833 | ) | $ | (5,000 | ) | $ | 4,167 | ||||||||||
CDX-NAIGS19V1- | 1.00 | 0.99 | 3,200 | 4,914 | 3,147 | 1,767 | ||||||||||||||||||
CDX-NAIGS19V1- | 1.00 | 0.99 | 5,750 | 8,830 | 12,368 | (3,538 | ) | |||||||||||||||||
Barclays Bank PLC: | ||||||||||||||||||||||||
Bank of America Corp., | 1.00 | 1.54 | 350 | (8,526 | ) | (23,731 | ) | 15,205 | ||||||||||||||||
Deutsche Bank AG: | ||||||||||||||||||||||||
Anadarko Petroleum Corp., | 1.00 | 1.58 | 440 | (11,586 | ) | (15,129 | ) | 3,543 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (7,201 | ) | $ | (28,345 | ) | $ | 21,144 | |||||||||||||||||
|
|
|
|
|
|
* | Termination date |
26 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Portfolio of Investments
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Interest Rate | Maturity | U.S. $ Value at October 31, 2012 | |||||||||
Barclays+ | 0.47 | % | — | $ | 34,779,655 | |||||||
Barclays | 0.26 | % | 11/08/12 | 4,712,117 | ||||||||
Barclays | 0.28 | % | 11/05/12 | 11,493,706 | ||||||||
Barclays | 0.28 | % | 12/13/12 | 16,101,759 | ||||||||
Goldman | 0.25 | % | 11/06/12 | 7,661,413 | ||||||||
Warburg+ | 0.23 | % | — | 1,594,737 | ||||||||
|
| |||||||||||
$ | 76,343,387 | |||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on October 31, 2012 |
(a) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. The market value of the collateral amounted to $76,834,324. |
(b) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2012, the aggregate market value of these securities amounted to $14,637,304 or 5.3% of net assets. |
(c) | Coupon rate adjusts periodically based upon a predetermined schedule. Stated interest rate in effect at October 31, 2012. |
(d) | Floating Rate Security. Stated interest rate was in effect at October 31, 2012. |
Currency Abbreviations:
CAD – Canadian Dollar
EUR – Euro
JPY – Japanese Yen
MXN – Mexican Peso
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
ARMs – Adjustable Rate Mortgages
CDX-NAHY – North American High Yield Credit Default Swap Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
LIBOR – London Interbank Offered Rates
REIT – Real Estate Investment Trust
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 27 |
Portfolio of Investments
STATEMENT OF ASSETS & LIABILITIES
October 31, 2012
Assets | ||||
Investments in securities, at value (cost $334,870,309) | $ | 347,888,615 | ||
Cash | 190,475 | (a) | ||
Receivable for capital stock sold | 24,019,798 | |||
Interest and dividends receivable | 1,690,597 | |||
Unrealized appreciation of forward currency exchange contracts | 70,698 | |||
Unrealized appreciation on credit default swap contracts | 24,682 | |||
Premium paid on credit default swap contracts | 15,515 | |||
Receivable for investment securities sold | 12,360 | |||
|
| |||
Total assets | 373,912,740 | |||
|
| |||
Liabilities | ||||
Due to custodian | 18,883,721 | |||
Payable for reverse repurchase agreements | 76,343,387 | |||
Payable for investment securities purchased | 2,406,133 | |||
Payable for capital stock redeemed | 608,399 | |||
Unrealized depreciation on interest rate swap contracts | 233,858 | |||
Advisory fee payable | 81,606 | |||
Payable for variation margin on futures contracts | 57,391 | |||
Premium received on credit default swap contracts | 43,860 | |||
Distribution fee payable | 27,549 | |||
Unrealized depreciation of forward currency exchange contracts | 25,235 | |||
Administrative fee payable | 20,372 | |||
Transfer Agent fee payable | 7,842 | |||
Unrealized depreciation on credit default swap contracts | 3,538 | |||
Accrued expenses | 175,822 | |||
|
| |||
Total liabilities | 98,918,713 | |||
|
| |||
Net Assets | $ | 274,994,027 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 242,684 | ||
Additional paid-in capital | 261,858,376 | |||
Undistributed net investment income | 2,903 | |||
Accumulated net realized gain on investment and foreign currency transactions | 95,919 | |||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 12,794,145 | |||
|
| |||
$ | 274,994,027 | |||
|
|
28 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Statement of Assets & Liabilities
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.01 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 17,627,247 | 1,551,316 | $ | 11.36 | * | ||||||
| ||||||||||||
C | $ | 7,990,691 | 708,558 | $ | 11.28 | |||||||
| ||||||||||||
Advisor | $ | 5,498,694 | 482,857 | $ | 11.39 | |||||||
| ||||||||||||
R | $ | 538,668 | 47,512 | $ | 11.34 | |||||||
| ||||||||||||
K | $ | 2,007,002 | 176,856 | $ | 11.35 | |||||||
| ||||||||||||
I | $ | 266,884 | 23,552 | $ | 11.33 | |||||||
| ||||||||||||
1 | $ | 193,864,538 | 17,110,115 | $ | 11.33 | |||||||
| ||||||||||||
2 | $ | 47,200,303 | 4,167,682 | $ | 11.33 | |||||||
|
(a) | An amount of $190,475 has been segregated to collateralize margin requirements for open futures contracts outstanding at October 31, 2012. |
* | The maximum offering price per share for Class A shares was $11.86 which reflects a sales charge of 4.25%. |
See notes to financial statements.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 29 |
Statement of Assets & Liabilities
STATEMENT OF OPERATIONS
Year Ended October 31, 2012
Investment Income | ||||||||
Interest | $ | 3,908,222 | ||||||
Dividends—Affiliated issuers | 2,515 | $ | 3,910,737 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 975,802 | |||||||
Distribution fee—Class A | 38,902 | |||||||
Distribution fee—Class C | 76,360 | |||||||
Distribution fee—Class R | 2,659 | |||||||
Distribution fee—Class K | 3,563 | |||||||
Distribution fee—Class 1 | 145,976 | |||||||
Transfer agency—Class A | 12,982 | |||||||
Transfer agency—Class C | 8,139 | |||||||
Transfer agency—Advisor Class | 2,859 | |||||||
Transfer agency—Class R | 1,305 | |||||||
Transfer agency—Class K | 2,464 | |||||||
Transfer agency—Class I | 213 | |||||||
Transfer agency—Class 1 | 11,187 | |||||||
Transfer agency—Class 2 | 1,803 | |||||||
Registration fees | 171,708 | |||||||
Custodian | 164,702 | |||||||
Administrative | 65,684 | |||||||
Audit | 54,250 | |||||||
Legal | 42,932 | |||||||
Printing | 34,883 | |||||||
Directors’ fees | 10,859 | |||||||
Miscellaneous | 14,078 | |||||||
|
| |||||||
Total expenses before interest expense | 1,843,310 | |||||||
Interest expense | 122,664 | |||||||
|
| |||||||
Total expenses | 1,965,974 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (694,739 | ) | ||||||
|
| |||||||
Net expenses | 1,271,235 | |||||||
|
| |||||||
Net investment income | 2,639,502 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 1,778,863 | |||||||
Futures contracts | (687,167 | ) | ||||||
Swap contracts | 20,299 | |||||||
Foreign currency transactions | (209,704 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 9,480,234 | |||||||
Futures contracts | (113,091 | ) | ||||||
Swap contracts | (108,598 | ) | ||||||
Foreign currency denominated assets and liabilities | 76,787 | |||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 10,237,623 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 12,877,125 | ||||||
|
|
See notes to financial statements.
30 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Statement of Operations
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 2,639,502 | $ | 2,284,417 | ||||
Net realized gain (loss) on investment and foreign currency transactions | 902,291 | (736,597 | ) | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 9,335,332 | 2,672,677 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 12,877,125 | 4,220,497 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (169,106 | ) | (157,776 | ) | ||||
Class C | (72,700 | ) | (134,028 | ) | ||||
Advisor Class | (43,444 | ) | (57,766 | ) | ||||
Class R | (5,628 | ) | (11,992 | ) | ||||
Class K | (17,250 | ) | (11,295 | ) | ||||
Class I | (2,972 | ) | (359 | ) | ||||
Class 1 | (2,173,375 | ) | (1,251,995 | ) | ||||
Class 2 | (350,510 | ) | (519,549 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 123,231,891 | 121,908,504 | ||||||
|
|
|
| |||||
Total increase | 133,274,031 | 123,984,241 | ||||||
Net Assets | ||||||||
Beginning of period | 141,719,996 | 17,735,755 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $2,903 and $352,468, respectively) | $ | 274,994,027 | $ | 141,719,996 | ||||
|
|
|
|
See notes to financial statements.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 31 |
Statement of Changes in Net Assets
STATEMENT OF CASH FLOWS
Year Ended October 31, 2012
Increase (Decrease) in Cash from | ||||||||
Operating Activities: | ||||||||
Interest and dividends received | $ | 4,022,199 | ||||||
Interest expense paid | (122,664 | ) | ||||||
Operating expenses paid | (965,659 | ) | ||||||
Purchases of long-term investments | (258,114,550 | ) | ||||||
Proceeds from disposition of long-term investments | 84,202,439 | |||||||
Purchases of short-term investments, net | (27,192 | ) | ||||||
Proceeds from swap contracts, net | 205,110 | |||||||
Variation margin paid on futures contracts | (816,804 | ) | ||||||
|
| |||||||
Net decrease in cash from operating activities | $ | (171,617,121 | ) | |||||
Financing Activities: | ||||||||
Cash dividends paid (net of dividend reinvestments) | (1,594,324 | ) | ||||||
Subscriptions of capital stock, net | 99,344,529 | |||||||
Increase in reverse repurchase agreements | 55,222,278 | |||||||
|
| |||||||
Net increase in cash from financing activities | 152,972,483 | |||||||
Effect of exchange rate on cash | (162,540 | ) | ||||||
|
| |||||||
Net decrease in cash | (18,807,178 | ) | ||||||
Cash at beginning of period | 113,932 | |||||||
|
| |||||||
Cash at end of period | $ | (18,693,246 | ) | |||||
|
| |||||||
Reconciliation of Net Increase in Net Assets from Operations to Net Decrease in Cash from Operating Activities: | ||||||||
Net increase in net assets from operations | $ | 12,877,125 | ||||||
Adjustments: | ||||||||
Increase in interest and dividends receivable | $ | (794,505 | ) | |||||
Net accretion of bond discount and amortization of bond premium | 3,933,635 | |||||||
Inflation Index Income | (3,027,668 | ) | ||||||
Increase in accrued expenses | 182,912 | |||||||
Purchases of long-term investments | (258,114,550 | ) | ||||||
Proceeds from disposition of long-term investments | 84,202,439 | |||||||
Purchases of short-term investments, net | (27,192 | ) | ||||||
Proceeds on swap contracts, net | 205,110 | |||||||
Variation margin paid on futures contracts | (816,804 | ) | ||||||
Net realized gain on investment and foreign currency transactions | (902,291 | ) | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (9,335,332 | ) | ||||||
|
| |||||||
Total adjustments | (184,494,246 | ) | ||||||
|
| |||||||
Net decrease in cash from operating activities | $ | (171,617,121 | ) | |||||
|
|
In accordance with U.S. GAAP, the Strategy has included a Statement of Cash Flows as a result of its substantial investments in reverse repurchase agreements throughout the period.
See notes to financial statements.
32 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Statement of Cash Flows
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of five portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio, the Real Asset Strategy Portfolio and the Limited Duration High Income Portfolio. They are each diversified Portfolios, with the exception of the Limited Duration High Income Portfolio, which is non-diversified. The Limited Duration High Income Portfolio commenced operations on December 7, 2011. Each Portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the Bond Inflation Strategy Portfolio (the “Strategy”). The Strategy offers Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2 shares. Class 1 shares are sold only to the private clients of Sanford C. Bernstein & Co. LLC by its registered representatives. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Strategy.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows: Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 33 |
Notes to Financial Statements
(“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures contracts are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Strategy may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Strategy values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Strategy would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset (including those valued based on their market values as described in Note 1 above) or liability. Inputs may be
34 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Strategy. Unobservable inputs reflect the Strategy’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Strategy’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Valuations of mortgage-backed or other asset backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset backed securities for which management has collected current observable data through brokers or pricing services are generally categorized within Level 2. Those investments for which current data has not been provided are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 35 |
Notes to Financial Statements
relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Strategy’s investments by the above fair value hierarchy levels as of October 31, 2012:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Inflation-Linked Securities | $ | – 0 | – | $ | 272,075,748 | $ | – 0 | – | $ | 272,075,748 | ||||||
Corporates – Investment Grades | – 0 | – | 36,535,466 | – 0 | – | 36,535,466 | ||||||||||
Asset-Backed Securities | – 0 | – | 14,226,188 | 944,751 | 15,170,939 | |||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 9,942,993 | 2,389,267 | 12,332,260 | |||||||||||
Mortgage Pass-Throughs | – 0 | – | 5,890,760 | – 0 | – | 5,890,760 | ||||||||||
Corporates – Non-Investment Grades | – 0 | – | 1,872,817 | – 0 | – | 1,872,817 | ||||||||||
Agencies | – 0 | – | 1,845,560 | – 0 | – | 1,845,560 | ||||||||||
Quasi-Sovereigns | – 0 | – | 1,642,490 | – 0 | – | 1,642,490 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 522,575 | – 0 | – | 522,575 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | – 0 | – | 344,554,597 | 3,334,018 | 347,888,615 | |||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets: | ||||||||||||||||
Futures Contracts | 2,693 | – 0 | – | – 0 | – | 2,693 | # | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 70,698 | – 0 | – | 70,698 | ||||||||||
Credit Default Swap Contracts | – 0 | – | 24,682 | – 0 | – | 24,682 | ||||||||||
Liabilities: | ||||||||||||||||
Futures Contracts | (60,240 | ) | – 0 | – | – 0 | – | (60,240 | )# | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (25,235 | ) | – 0 | – | (25,235 | ) | ||||||||
Interest Rate Swap Contracts | – 0 | – | (233,858 | ) | – 0 | – | (233,858 | ) | ||||||||
Credit Default Swap Contracts | – 0 | – | (3,538 | ) | – 0 | – | (3,538 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total+ | $ | (57,547 | ) | $ | 344,387,346 | $ | 3,334,018 | $ | 347,663,817 | |||||||
|
|
|
|
|
|
|
|
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
36 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
# | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of futures contracts as reported in the portfolio of investments. |
+ | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Strategy recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Asset-Backed Securities | Commercial Mortgage-Backed Securities | Collateralized Mortgage Obligations | ||||||||||
Balance as of 10/31/11 | $ | 144,901 | $ | 438,694 | $ | 2,014 | ||||||
Accrued discounts/(premiums) | 7 | (7,868 | ) | 3 | ||||||||
Realized gain (loss) | 3,375 | – 0 | – | 193 | ||||||||
Change in unrealized appreciation/depreciation | 8,142 | 62,583 | (183 | ) | ||||||||
Purchases | 893,693 | 2,334,552 | – 0 | – | ||||||||
Sales | (105,367 | ) | – 0 | – | (2,027 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | (438,694 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/12++ | $ | 944,751 | $ | 2,389,267 | $ | – 0 | – | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/12* | $ | 8,142 | $ | 62,583 | $ | – 0 | – | |||||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Balance as of 10/31/11 | $ | 585,609 | ||||||||||
Accrued discounts/(premiums) | (7,858 | ) | ||||||||||
Realized gain (loss) | 3,568 | |||||||||||
Change in unrealized appreciation/depreciation | 70,542 | |||||||||||
Purchases | 3,228,245 | |||||||||||
Sales | (107,394 | ) | ||||||||||
Transfers in to Level 3 | – 0 | – | ||||||||||
Transfers out of Level 3 | (438,694 | ) | ||||||||||
|
| |||||||||||
Balance as of 10/31/12 | $ | 3,334,018 | ||||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/12* | $ | 70,725 | ||||||||||
|
|
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations. |
++ | There were de minimis transfers under 1% of net assets during the reporting period. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 37 |
Notes to Financial Statements
The following presents information about significant unobservable inputs related to the Strategy with material categories of Level 3 investments at October 31, 2012:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 10/31/2012 | Valuation Technique | Unobservable Input | Range | |||||||||
Asset-backed Securities | $ 750,915 | Third Party Vendor | Evaluated Quotes | $100.30 – $100.83 | ||||||||
193,836 | Indicative Market Quotations | Broker Quote | $100.15 | |||||||||
Commercial Mortgage-Backed Securities | $2,389,267 | Third Party Vendor | Evaluated Quotes | $ 96.64 –$117.09 |
The Adviser has established a Valuation Committee (the “Committee”) which is responsible for overseeing the pricing and valuation of all securities held in the Strategy. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable comfort over the accuracy of prices including: 1) periodic vendor due diligence meetings, review methodologies, new developments, process at vendors, 2) daily compare of security valuation versus prior day for all fixed income securities that exceed established thresholds, 3) monthly multi-source pricing compares, reviewed and submitted to the Committee, and 4) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, there are several processes outside of the pricing process that are used to monitor valuation issues including: 1) monitoring of performance and performance attribution reports for anomalous impacts based upon benchmark performance, and 2) review by portfolio managers, of all portfolios for performance and analytics (which are generated using the Adviser’s prices).
38 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Strategy’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Strategy’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Strategy may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Strategy’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (all years since inception of the Strategy) and has concluded that no provision for income tax is required in the Strategy’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Strategy is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Strategy amortizes premiums and accretes discounts as adjustments to interest income.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 39 |
Notes to Financial Statements
6. Class Allocations
All income earned and expenses incurred by the Strategy are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Strategy represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Strategy in proportion to each Strategy’s respective net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Strategy pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Strategy’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to .75%, 1.45%, .45%, .95%, .70%, .45%, .55% and .45% of the daily average net assets for the Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1, and Class 2 shares, respectively. Under the agreement, fees waived and expenses borne by the Adviser are subject to repayment by the Strategy until January 26, 2013. No repayment will be made that would cause the Strategy’s total annualized operating expenses to exceed the net fee percentage set forth above, or would have exceeded the amount of offering expenses as recorded by the Strategy before January 26, 2011. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2013 and then may be extended by the Adviser for additional one-year terms. For the year ended October 31, 2012, such reimbursement amounted to $694,739, which is subject to repayment, not to exceed the amount of offering expenses.
Pursuant to the investment advisory agreement, the Strategy may reimburse the Adviser for certain legal and accounting services provided to the Strategy by the Adviser. For the year ended October 31, 2012, the reimbursement for such services amounted to $65,684.
40 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
The Strategy compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Strategy. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $18,005 for the year ended October 31, 2012.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Strategy’s shares. The Distributor has advised the Strategy that it has retained front-end sales charges of $5,095 from the sale of Class A shares and received $671 in contingent deferred sales charges imposed upon redemptions by shareholders of Class C shares for the year ended October 31, 2012.
The Strategy may invest in the AllianceBernstein Fixed-Income Shares, Inc.—Government STIF Portfolio (“Government STIF Portfolio”), an open-end management investment company managed by the Adviser. The Government STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Strategy’s transactions in shares of the Government STIF Portfolio for the year ended October 31, 2012 is as follows:
Market Value October 31, 2011 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2012 (000) | Dividend Income (000) | ||||||||||||
$ 195 | $ | 131,987 | $ | 132,182 | $ | – 0 | – | $ | 3 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2012 amounted to $2,285, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Strategy has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Strategy pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Strategy’s average daily net assets attributable to Class A shares, 1% of the Strategy’s average daily net assets attributable to Class C shares, .50% of the Strategy’s average daily net assets attributable to Class R shares , .25% of the Strategy’s average daily net assets attributable to Class K shares and .10% of the Strategy’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class,
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 41 |
Notes to Financial Statements
Class I, and Class 2 shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Strategy’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Strategy in the amounts of $217,171, $14,733, $13,267 and $772,061 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Strategy in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Strategy’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2012 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 66,179,329 | $ | 24,287,657 | ||||
U.S. government securities | 192,268,558 | 55,407,710 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures, foreign currency and swap transactions) are as follows:
Cost | $ | 334,900,378 | ||
|
| |||
Gross unrealized appreciation | $ | 13,060,714 | ||
Gross unrealized depreciation | (72,477 | ) | ||
|
| |||
Net unrealized appreciation | $ | 12,988,237 | ||
|
|
1. Derivative Financial Instruments
The Strategy may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Strategy, as well as the methods in which they may be used are:
• | Futures Contracts |
The Strategy may buy or sell futures contracts for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential
42 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
movements in the market or for investment purposes. The Strategy bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Strategy may purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Strategy enters into a futures contract, the Strategy deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Pursuant to the contract, the Strategy agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Strategy as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures contracts is generally less than privately negotiated futures contracts, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements). When the contract is closed, the Strategy records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures contracts subjects the Strategy to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Strategy to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended October 31, 2012, the Strategy held futures contracts for hedging and non-hedging purposes.
• | Forward Currency Exchange Contracts |
The Strategy may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 43 |
Notes to Financial Statements
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Strategy. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended October 31, 2012, the Strategy held forward currency exchange contracts for hedging and non-hedging purposes.
• | Swap Agreements |
The Strategy may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Strategy may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Strategy in accordance with the terms of the respective swap agreements to provide value and recourse to the Strategy or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Strategy, and/or the termination value at the end of the contract. Therefore, the Strategy considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Strategy and the counterparty and by the posting of collateral by the counterparty to the Strategy to cover the Strategy’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Strategy accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded
44 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
upon the termination of swap contracts. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the statement of operations.
Interest Rate Swaps:
The Strategy is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Strategy holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Strategy may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Strategy may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Strategy may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Strategy anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Strategy with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Strategy receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended October 31, 2012, the Strategy held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Strategy may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Strategy, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Strategy may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap agreement, the Strategy receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Strategy is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap agreement, the
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 45 |
Notes to Financial Statements
Strategy will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap contract (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
Credit default swaps may involve greater risks than if a Strategy had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Strategy is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Strategy is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Strategy coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Strategy.
During the year ended October 31, 2012, the Strategy held credit default swaps for non-hedging purposes.
Implied credit spreads utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
At October 31, 2012, the Strategy had Sale Contracts outstanding with Maximum Payout Amounts aggregating $10,540,000, with net unrealized appreciation/(depreciation) of $21,144, and terms of less than 5 years, as reflected in the portfolio of investments.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swap agreements entered into by the Strategy for the same reference obligation with the same counterparty.
Documentation governing the Strategy’s OTC derivatives may contain provisions for early termination of such transaction in the event the net assets of the Strategy decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are
46 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
triggered, the Strategy’s counterparty has the right to terminate such transaction and require the Strategy to pay or receive a settlement amount in connection with the terminated transaction. As of October 31, 2012, the Strategy had OTC derivatives with contingent features in net liability positions in the amount of $253,970. If a trigger event had occurred at October 31, 2012, for those derivatives in a net liability position, an amount of $253,970 would be required to be posted by the Strategy.
At October 31, 2012, the Strategy had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Foreign exchange contracts | Unrealized appreciation of forward currency exchange contracts | $ | 70,698 |
| Unrealized depreciation of forward currency exchange contracts | $ | 25,235 |
| ||||
Credit contracts | Unrealized appreciation on credit default swap contracts | 24,682 | Unrealized depreciation on credit default swap contracts | 3,538 | ||||||||
Interest rate contracts | Unrealized depreciation on interest rate swap contracts | 233,858 | ||||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures contracts | 57,547 | * | |||||||||
|
|
|
| |||||||||
Total | $ | 95,380 | $ | 320,178 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of futures contracts as reported in the portfolio of investments. |
The effect of derivative instruments on the statement of operations for the year ended October 31, 2012:
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | $ | 109,849 | $ | 75,904 |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 47 |
Notes to Financial Statements
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Credit contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | $ | 50,741 | $ | 67,893 | |||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | (30,442 | ) | (176,491 | ) | |||||
Interest rate contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | (687,167 | ) | (113,091 | ) | |||||
|
|
|
| |||||||
Total | $ | (557,019 | ) | $ | (145,785 | ) | ||||
|
|
|
|
The following table represents the volume of the Portfolios’ derivative transactions during the year ended October 31, 2012:
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 3,516,594 | ||
Average principal amount of sale contracts | $ | 5,941,615 | ||
Credit Default Swap Contracts: | ||||
Average notional amount of buy contracts | $ | 1,812,871 | (a) | |
Average notional amount of sale contracts | $ | 5,684,377 | ||
Interest Rate Swap Contracts: | ||||
Average notional amount | $ | 25,896,299 | ||
Futures Contracts: | ||||
Average original value of sale contracts | $ | 19,645,948 |
(a) | Positions were open four months during the year. |
2. Currency Transactions
The Strategy may invest in non-U.S. Dollar securities on a currency hedged or unhedged basis. The Strategy may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Strategy may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Strategy and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Strategy may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
48 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
3. Dollar Rolls
The Strategy may enter into dollar rolls. Dollar rolls involve sales by the Strategy of securities for delivery in the current month and the Strategy’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Strategy forgoes principal and interest paid on the securities. The Strategy is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Strategy is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques and may be considered to be borrowings by the Strategy. For the year ended October 31, 2012, the Strategy earned drop income of $7,292 which is included in interest income in the accompanying statement of operations.
4. Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Strategy sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Strategy enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. For the year ended October 31, 2012, the average amount of reverse repurchase agreements outstanding was $54,144,957 and the daily weighted average interest rate was 0.22%.
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||||||||||||
|
| |||||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 1,042,221 | 1,032,165 | $ | 11,534,637 | $ | 10,994,239 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 11,093 | 10,506 | 122,370 | 111,667 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (401,845 | ) | (332,822 | ) | (4,422,997 | ) | (3,567,603 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 651,469 | 709,849 | $ | 7,234,010 | $ | 7,538,303 | ||||||||||||||
| ||||||||||||||||||||
Class C | ||||||||||||||||||||
Shares sold | 270,491 | 408,141 | $ | 2,967,544 | $ | 4,291,840 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,874 | 11,342 | 64,433 | 120,164 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (197,224 | ) | (111,834 | ) | (2,173,211 | ) | (1,193,140 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 79,141 | 307,649 | $ | 858,766 | $ | 3,218,864 | ||||||||||||||
|
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 49 |
Notes to Financial Statements
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||||||||||||
|
| |||||||||||||||||||
Advisor Class | ||||||||||||||||||||
Shares sold | 320,367 | 126,758 | $ | 3,594,822 | $ | 1,352,392 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 3,053 | 3,896 | 33,730 | 41,346 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (55,346 | ) | (20,362 | ) | (612,792 | ) | (218,302 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 268,074 | 110,292 | $ | 3,015,760 | $ | 1,175,436 | ||||||||||||||
| ||||||||||||||||||||
Class R | ||||||||||||||||||||
Shares sold | 15,489 | 51,419 | $ | 170,492 | $ | 537,332 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 506 | 1,103 | 5,572 | 11,705 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (13,755 | ) | (8,250 | ) | (151,862 | ) | (87,747 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 2,240 | 44,272 | $ | 24,202 | $ | 461,290 | ||||||||||||||
| ||||||||||||||||||||
Class K | ||||||||||||||||||||
Shares sold | 162,857 | 38,162 | $ | 1,791,997 | $ | 406,275 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,565 | 1,059 | 17,250 | 11,180 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (39,960 | ) | (61,443 | ) | (444,246 | ) | (629,566 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase (decrease) | 124,462 | (22,222 | ) | $ | 1,365,001 | $ | (212,111 | ) | ||||||||||||
| ||||||||||||||||||||
Class I | ||||||||||||||||||||
Shares sold | 30,641 | 8,810 | $ | 336,899 | $ | 94,772 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 256 | – 0 | –(a) | 2,811 | 1 | |||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (14,391 | ) | (2,764 | ) | (158,308 | ) | (29,936 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 16,506 | 6,046 | $ | 181,402 | $ | 64,837 | ||||||||||||||
| ||||||||||||||||||||
Class 1 | ||||||||||||||||||||
Shares sold | 9,636,851 | 10,366,559 | $ | 106,547,271 | $ | 110,542,299 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 72,723 | 4,503 | 800,249 | 47,964 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (2,355,054 | ) | (616,467 | ) | (26,093,698 | ) | (6,605,107 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 7,354,520 | 9,754,595 | $ | 81,253,822 | $ | 103,985,156 | ||||||||||||||
| ||||||||||||||||||||
Class 2 | ||||||||||||||||||||
Shares sold | 3,454,039 | 1,614,483 | $ | 38,509,286 | $ | 17,013,084 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 17,669 | 19,819 | 194,246 | 209,346 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (840,121 | ) | (1,091,207 | ) | (9,404,604 | ) | (11,545,701 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 2,631,587 | 543,095 | $ | 29,298,928 | $ | 5,676,729 | ||||||||||||||
|
(a) | Share amount is less than one full share. |
50 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
NOTE F
Risks Involved in Investing in the Strategy
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Strategy’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Strategy’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Foreign Securities Risk—Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies or of the U.S. government.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the real value of the Strategy’s assets can decline as can the real value of the Strategy’s distributions.
Currency Risk—This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Strategy’s investments or reduce the returns of the Strategy. For example, the value of the Strategy’s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Strategy’s investments denominated in foreign currencies, the Strategy’s positions in various foreign currencies may cause the Strategy to experience investment losses due to the changes in exchange rates and interest rates.
Derivatives Risk—The Strategy may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 51 |
Notes to Financial Statements
Leverage Risk—When the Strategy borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Strategy’s investments. The Strategy may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures contracts or by borrowing money. The use of derivative instruments by the Strategy, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Strategy than if the Strategy were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Strategy enters into contracts that contain a variety of indemnifications. The Strategy’s maximum exposure under these arrangements is unknown. However, the Strategy has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Strategy has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Strategy, participate in a $140 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Strategy did not utilize the Facility during the year ended October 31, 2012.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 2,834,985 | $ | 2,144,760 | ||||
|
|
|
| |||||
Total taxable distributions paid | 2,834,985 | 2,144,760 | ||||||
|
|
|
|
As of October 31, 2012, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 45,794 | ||
Undistributed capital gains | 38,486 | (a) | ||
Unrealized appreciation/(depreciation) | 12,817,147 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 12,901,427 | (c) | |
|
|
(a) | During the fiscal year ended October 31, 2012, the Strategy utilized $904,494 of capital loss carryforwards to offset current year net realized gains. |
52 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Notes to Financial Statements
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, the realization for tax purposes of gains/losses on certain derivative instruments, and the tax treatment of Treasury inflation-protected securities. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the amortization of offering costs. |
For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-enactment capital losses must be utilized prior to the pre-enactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of October 31, 2012, the Strategy did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, foreign currency reclassifications, reclassifications of consent fees and paydown gains/losses, and the tax treatment of Treasury inflation-protected securities resulted in a net decrease in undistributed net investment income and a net decrease in accumulated net realized loss on investment and foreign currency transactions. These reclassifications had no effect on net assets.
NOTE I
Recent Accounting Pronouncement
In December 2011, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) related to disclosures about offsetting assets and liabilities in financial statements. The amendments in this update require an entity to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective during interim or annual reporting periods beginning on or after January 1, 2013. At this time, management is evaluating the implication of this ASU and its impact on the financial statements has not been determined.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Strategy’s financial statements through this date.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 53 |
Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.81 | $ 10.53 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .13 | .38 | .14 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .56 | .21 | .47 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .69 | .59 | .61 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.14 | ) | (.31 | ) | (.08 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.00 | )(d) | ||||||
|
| |||||||||||
Total dividends and distributions | (.14 | ) | (.31 | ) | (.08 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.36 | $ 10.81 | $ 10.53 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.41 | % | 5.75 | % | 6.15 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $17,627 | $9,732 | $2,000 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .81 | % | .78 | % | .80 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .75 | % | .75 | % | .75 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.25 | % | 1.87 | % | 4.63 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | 1.18 | % | 1.83 | % | 4.58 | %(f)(g) | ||||||
Net investment income(c) | 1.20 | % | 3.59 | % | 1.76 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61.
54 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.78 | $ 10.50 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .04 | .30 | .08 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .56 | .22 | .48 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .60 | .52 | .56 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.10 | ) | (.24 | ) | (.06 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.00 | )(d) | ||||||
|
| |||||||||||
Total dividends and distributions | (.10 | ) | (.24 | ) | (.06 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.28 | $ 10.78 | $ 10.50 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 5.61 | % | 5.03 | % | 5.61 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $7,991 | $6,782 | $3,378 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.51 | % | 1.49 | % | 1.50 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | 1.45 | % | 1.45 | % | 1.45 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.96 | % | 2.84 | % | 4.80 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | 1.90 | % | 2.80 | % | 4.75 | %(f)(g) | ||||||
Net investment income(c) | .39 | % | 2.82 | % | 1.12 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 55 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.83 | $ 10.55 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .16 | .39 | .17 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .56 | .24 | .47 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .72 | .63 | .64 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.16 | ) | (.35 | ) | (.09 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.00 | )(d) | ||||||
|
| |||||||||||
Total dividends and distributions | (.16 | ) | (.35 | ) | (.09 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.39 | $ 10.83 | $ 10.55 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.69 | % | 6.07 | % | 6.46 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $5,499 | $2,325 | $1,102 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .51 | % | .49 | % | .50 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .45 | % | .45 | % | .45 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .95 | % | 1.80 | % | 4.50 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | .89 | % | 1.76 | % | 4.44 | %(f)(g) | ||||||
Net investment income(c) | 1.52 | % | 3.70 | % | 2.13 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61
56 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 10.79 | $ 10.50 | $ 10.00 | |||||||||
|
|
|
|
|
| |||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .11 | .43 | .12 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .55 | .15 | .48 | |||||||||
|
|
|
|
|
| |||||||
Net increase in net asset value from operations | .66 | .58 | .60 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.11 | ) | (.29 | ) | (.09 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.01 | ) | ||||||
|
|
|
|
|
| |||||||
Total dividends and distributions | (.11 | ) | (.29 | ) | (.10 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value, end of period | $ 11.34 | $ 10.79 | $ 10.50 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.18 | % | 5.59 | % | 6.04 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $539 | $488 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.01 | % | .98 | % | 1.00 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .95 | % | .95 | % | .95 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.60 | % | 2.16 | % | 5.74 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | 1.54 | % | 2.13 | % | 5.69 | %(f)(g) | ||||||
Net investment income(c) | .98 | % | 4.16 | % | 1.53 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 57 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.79 | $ 10.50 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .13 | .28 | .09 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .57 | .31 | .53 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .70 | .59 | .62 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.14 | ) | (.30 | ) | (.12 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.00 | )(d) | ||||||
|
| |||||||||||
Total dividends and distributions | (.14 | ) | (.30 | ) | (.12 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.35 | $ 10.79 | $ 10.50 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.51 | % | 5.75 | % | 6.22 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $2,007 | $566 | $784 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .77 | % | .75 | % | .75 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .70 | % | .70 | % | .70 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.27 | % | 2.39 | % | 3.53 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | 1.21 | % | 2.34 | % | 3.48 | %(f)(g) | ||||||
Net investment income(c) | 1.19 | % | 2.76 | % | 1.12 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61
58 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 10.78 | $ 10.51 | $ 10.00 | |||||||||
|
|
|
|
|
| |||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .18 | .27 | .16 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .53 | .36 | .48 | |||||||||
|
|
|
|
|
| |||||||
Net increase in net asset value from operations | .71 | .63 | .64 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.16 | ) | (.36 | ) | (.12 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.01 | ) | ||||||
|
|
|
|
|
| |||||||
Total dividends and distributions | (.16 | ) | (.36 | ) | (.13 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value, end of period | $ 11.33 | $ 10.78 | $ 10.51 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.65 | % | 6.11 | % | 6.46 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $267 | $76 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .52 | % | .50 | % | .49 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .45 | % | .45 | % | .45 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .95 | % | 1.91 | % | 5.19 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | .89 | % | 1.86 | % | 5.16 | %(f)(g) | ||||||
Net investment income(c) | 1.54 | % | 3.67 | % | 2.03 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 59 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 10.78 | $ 10.51 | $ 10.00 | |||||||||
|
|
|
|
|
| |||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .16 | .34 | .15 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .55 | .28 | .48 | |||||||||
|
|
|
|
|
| |||||||
Net increase in net asset value from operations | .71 | .62 | .63 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.16 | ) | (.35 | ) | (.11 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.01 | ) | ||||||
|
|
|
|
|
| |||||||
Total dividends and distributions | (.16 | ) | (.35 | ) | (.12 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value, end of period | $ 11.33 | $ 10.78 | $ 10.51 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.63 | % | 6.01 | % | 6.39 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $193,864 | $105,201 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .61 | % | .58 | % | .58 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .55 | % | .55 | % | .55 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .96 | % | 1.20 | % | 5.29 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | .89 | % | 1.18 | % | 5.25 | %(f)(g) | ||||||
Net investment income(c) | 1.41 | % | 3.24 | % | 1.93 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
See footnote summary on page 61
60 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||
Year Ended October 31, | January 26, 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 10.77 | $ 10.51 | $ 10.00 | |||||||||
|
|
|
|
|
| |||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .14 | .39 | .16 | |||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .59 | .23 | .48 | |||||||||
|
|
|
|
|
| |||||||
Net increase in net asset value from operations | .73 | .62 | .64 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.17 | ) | (.36 | ) | (.12 | ) | ||||||
Tax return of capital | – 0 | – | – 0 | – | (.01 | ) | ||||||
|
|
|
|
|
| |||||||
Total dividends and distributions | (.17 | ) | (.36 | ) | (.13 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value, end of period | $ 11.33 | $ 10.77 | $ 10.51 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 6.80 | % | 6.01 | % | 6.44 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $47,200 | $16,550 | $10,439 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .51 | % | .49 | % | .49 | %(f)(g) | ||||||
Expenses, net of waivers/reimbursements, excluding interest expense | .45 | % | .45 | % | .45 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .86 | % | 1.84 | % | 5.18 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements, excluding interest expense | .80 | % | 1.80 | % | 5.13 | %(f)(g) | ||||||
Net investment income(c) | 1.36 | % | 3.73 | % | 2.05 | %(f)(g) | ||||||
Portfolio turnover rate | 32 | % | 38 | % | 34 | % |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees waived and expenses reimbursed by the Adviser. |
(d) | Amount is less than $.005. |
(e) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
(f) | Annualized. |
(g) | The ratio includes expenses attributable to costs of proxy solicitation. |
See notes to financial statements.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 61 |
Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc.
and Shareholders of the AllianceBernstein Bond Inflation Strategy Portfolio
We have audited the accompanying statement of assets and liabilities including the portfolio of investments, of AllianceBernstein Bond Inflation Strategy Portfolio (one of the portfolios constituting the AllianceBernstein Bond Fund, Inc.) (the “Strategy”), as of October 31, 2012, and the related statement of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for the two years in the period then ended and the period January 26, 2010 (commencement of operations) through October 31, 2010. These financial statements and financial highlights are the responsibility of the Strategy’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Strategy’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Strategy’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2012 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AllianceBernstein Bond Inflation Strategy Portfolio of the AllianceBernstein Bond Fund, Inc. at October 31, 2012, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and the period January 26, 2010 (commencement of operations) through October 31, 2010, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 27, 2012
62 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Report of Independent Registered Public Accounting Firm
2012 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Strategy during the taxable year ended October 31, 2012.
For foreign shareholders, 92.72% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2013.
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 63 |
2012 Federal Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1) , Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner, Jr.(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Paul J. DeNoon(2), Vice President Rajen B. Jadav(2), Vice President Shawn E. Keegan(2) , Vice President Douglas J. Peebles(2) , Vice President | Greg J. Wilensky(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Strategy’s portfolio are made by the Adviser’s U.S. Core Fixed-Income Team. Mr. Paul J. DeNoon, Mr. Rajen B. Jadav, Mr. Shawn E. Keegan, Mr. Douglas J. Peebles and Mr. Greg J. Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
64 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, + 1345 Avenue of the Americas New York, New York 10105 52 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 101 | None | |||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 65 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board 80 (1998) | Investment Adviser and an Independent Consultant since prior to 2007. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 101 | None | |||||
John H. Dobkin, # 70 (1998) | Independent Consultant since prior to 2007. Formerly, President of Save Venice, Inc. (preservation organization) from 2001-2002, Senior Advisor from June 1999-June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 101 | None | |||||
66 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 68 (2005) | Private Investor since prior to 2007. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, Director of the Prudential mutual funds and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 101 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2007 and Prospect Acquisition Corp. (financial services) from 2007 until 2009 | |||||
D. James Guzy, # 76 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2007. He was a director of Intel Corporation (semi-conductors) from 1969 until 2008, and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 101 | Cirrus Logic Corporation (semi-conductors) and PLX Technology (semi-conductors) since prior to 2007 and Intel Corporation (semi-conductors) since prior to 2007 until 2008 | |||||
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 67 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 64 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 101 | None | |||||
68 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, # 60 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committee, of the AllianceBernstein Funds since 2008. | 101 | None |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 69 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 71 (2005) | Private Investor since prior to 2007. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003-2005, and President and CEO, 2005-2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 101 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2007 | |||||
Earl D. Weiner, # 73 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP, and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of the Funds. | 101 | None |
70 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
* | The address for each of the Strategy’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Strategy’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Strategy. |
+ | Mr. Keith is an “interested person” of the Strategy as defined in the “40 Act”, due to his position as a Senior Vice President of the Adviser. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 71 |
Management of the Fund
Officer Information
Certain information concerning the Strategy’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 52 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 67 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Paul J. DeNoon 50 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Rajen B. Jadav 37 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Shawn E. Keegan 41 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Douglas J. Peebles 47 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Greg J. Wilensky 45 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Emilie D. Wrapp 57 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2007. | ||
Joseph J. Mantineo 53 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2007. | ||
Phyllis J. Clarke 51 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2007. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
72 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORTS OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and AllianceBernstein Bond Fund, Inc. (the “Fund”) in respect of AllianceBernstein Bond Inflation Strategy (the “Strategy”).2 The evaluation of the Investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Strategy which was provided to the Directors in connection with their review of the proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Strategy grows larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Strategy. |
These factors, with the exception of the first factor, are generally referred to as the “Gartenberg factors,” which were articulated by the United States Court of Appeals for the Second Circuit in 1982. Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (2d Cir. 1982). On March 30, 2010, the Supreme Court held the Gartenberg decision was correct in its basic formulation of what §36(b) requires: to face liability under §36(b), “an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.” Jones v. Harris Associates L.P., 130 S. Ct. 1418 (2010). In Jones, the Court stated the Gartenberg approach fully incorporates
1 | The Senior Officer’s fee evaluation was completed on October 25, 2012 and discussed with the Board of Directors on November 6-8, 2012. |
2 | Future references to the Fund or the Strategy do not include “AllianceBernstein.” |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 73 |
the correct understanding of fiduciary duty within the context of section 36(b) and noted with approval that “Gartenberg insists that all relevant circumstances be taken into account” and “uses the range of fees that might result from arm’s length bargaining as the benchmark for reviewing challenged fees.”3
PORTFOLIO ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS
The Adviser proposed that the Strategy pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser’s settlement with the NYAG in December 2003, is based on a master schedule that contemplates eight categories of funds with almost all funds in each category having the same advisory fee schedule.4
Category | Net Assets 09/30/12 ($MM) | Advisory Fee Based on % of Average Daily Net Assets | Strategy | |||||
High Income | $ | 242.6 | 50 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance | Bond Inflation Strategy |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Strategy. During the Strategy’s most recently completed fiscal year, the Adviser was entitled to receive $66,574 (0.10% of the Strategy’s average daily net assets) for providing such services, but waived the amount in its entirety.
The Adviser agreed to waive that portion of its advisory fees and/or reimburse the Strategy for that portion of the Strategy’s total operating expenses to the degree necessary to limit the Strategy’s expense ratios to the amounts set forth below for the Strategy’s current fiscal year. The waiver is terminable by the Adviser prior to the Strategy’s new Prospectus date upon at least 60 days written notice. In addition, set forth below are the Strategy’s gross expense ratios, annualized for the most recent semi-annual period:
Strategy | Expense Cap Pursuant to Expense Limitation Undertaking | Gross Expense Ratio5 | Fiscal Year End | |||||||||
Bond Inflation Strategy | Advisor | 0.45 | % | 0.95 | % | October 31 (ratio as of April 30, 2012) | ||||||
Class A | 0.75 | % | 1.25 | % | ||||||||
Class C | 1.45 | % | 1.95 | % | ||||||||
Class R | 0.95 | % | 1.56 | % | ||||||||
Class K | 0.70 | % | 1.28 | % | ||||||||
Class I | 0.45 | % | 0.93 | % | ||||||||
Class 1 | 0.55 | % | 0.95 | % | ||||||||
Class 2 | 0.45 | % | 0.85 | % |
3 | Jones v. Harris at 1427. |
4 | Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser’s settlement with the NYAG. |
5 | Annualized. |
74 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
I. | ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Strategy that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes–Oxley Act of 2002, and coordinating with and monitoring the Portfolio’s third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Strategy are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, the Adviser is entitled to be reimbursed for providing some of these services. Also, retail mutual funds managed by the Adviser are widely held and accordingly, servicing the Strategy’s investors is more time consuming and labor intensive compared to servicing institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly if the Strategy is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, the Supreme Court has indicated consideration should be given to the advisory fees charged to institutional accounts with a similar investment style as the Strategy.6 In addition to the AllianceBernstein Institutional fee schedule, set
6 | The Supreme Court stated that “courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but the courts must be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v. Harris at 1428. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 75 |
forth below is what would have been the effective advisory fee for the Strategy had the AllianceBernstein Institutional fee schedule been applicable to the Strategy versus the Strategy’s advisory fees based on September 30, 2012 net assets.7
Strategy | Net Assets 09/30/12 ($MM) | AllianceBernstein (“AB”) Fee Schedule | Effective AB Inst. Adv. Fee | Strategy Fee | ||||||||
Bond Inflation Strategy | $ 242.6 | TIPS Plus Schedule 50 bp on 1st $30 million 20 bp on the balance Minimum Account Size: $25 m | 0.281% | 0.500% |
The Adviser represented that it does not sub-advise any registered investment companies that have a similar investment strategy as the Strategy.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the Adviser, compared the fees charged to the Strategy with fees charged to other investment companies for similar services offered by other investment advisers.8 Lipper’s analysis included the comparison of the Strategy’s contractual management fee, estimated at the approximate current asset level of the Strategy, to the median of the Strategy’s Lipper Expense Group (“EG”)9 and the Strategy’s contractual management fee ranking.10
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, expense components and attributes. An EG will typically consist of seven to twenty funds.
7 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule. Discounts that are negotiated vary based upon each client relationship. |
8 | The Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since “these comparisons are problematic because these fees, like those challenged, may not be the product of negotiations conducted at arm’s length.” Jones v. Harris at 1429. |
9 | Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes. There are limitations to Lipper expense category data because different funds categorize expenses differently. |
10 | The contractual management fee is calculated by Lipper using the Strategy’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Strategy, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” would mean that Strategy had the lowest effective fee rate in the Lipper peer group. |
76 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
Strategy | Contractual Management Fee (%) | Lipper Expense Median (%) | Rank | |||||||||
Bond Inflation Strategy | 0.500 | 0.500 | 5/11 |
Lipper also compared the Strategy’s total expense ratio to the medians of the Strategy’s EG and Lipper Expense Universe (“EU”). The EU11 is a broader group compared to the EG, consisting of all funds that have the same investment classification/objective and load type as the subject Strategy.
Strategy | Expense Ratio | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Median (%) | Lipper Rank | |||||||||||||||
Bond Inflation Strategy | 0.750 | 0.854 | 3/11 | 0.847 | 4/19 |
Based on this analysis, the Strategy has a more favorable ranking on a total expense ratio basis than on a management fee basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE ADVISORY FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Strategy. The Senior Officer has retained an independent consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The profitability information for the Strategy, prepared by the Adviser for the Board of Directors, was reviewed by the Senior Officer and the independent consultant. The Adviser’s profitability from providing investment advisory services to the Strategy in 2011 was negative.
In addition to the Adviser’s direct profits from managing the Strategy, certain of the Adviser’s affiliates have business relationships with the Strategy and may earn a profit from providing other services to the Strategy. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that such benefits should be factored into the evaluation of the total relationship between the Strategy and the Adviser. Neither case law nor common
11 | Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. |
12 | Most recently completed fiscal year Class A share total expense ratio. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 77 |
business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are competitive. These affiliates provide transfer agent and distribution related services to the Strategy and receive transfer agent fees, front-end sales loads, Rule 12b-1 payments and contingent deferred sales charges (“CDSC”). During the Strategy’s most recently completed fiscal year, ABI received from the Portfolio $3,922, $114,082 and $5,850 in front-end sales charges, Rule 12b-1 and CDSC fees, respectively.
AllianceBernstein Investments, Inc. (“ABI”), an affiliate of the Adviser, is the Strategy’s principal underwriter. ABI and the Adviser have disclosed in the Strategy’s prospectus that they may make revenue sharing payments from their own resources, in addition to revenues derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Strategy. In 2011, ABI paid approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $17 million for distribution services and educational support (revenue sharing payments).
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”), the affiliated transfer agent for the Strategy, are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis. During the Strategy’s most recently completed fiscal year, ABIS received $17,888 in fees from the Strategy.
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through pricing to scale, breakpoints, fee reductions/waivers and enhancement to services.
An independent consultant, retained by the Senior Officer, provided the Board of Directors information on the Adviser’s firm-wide average costs from 2005 through 2011 and the potential economies of scale. The independent consultant noted that from 2005 through 2007 the Adviser experienced significant growth in assets under management (“AUM”). During this period, operating expenses increased, in part to keep up with growth, and in part reflecting market returns. However, from 2008 through the first quarter of 2009, AUM rapidly and significantly decreased due to declines in market value and client withdrawals. When AUM rapidly decreased, some operating expenses categories, including base compensation and office space, adjusted more slowly during this period, resulting in an increase in average costs. Since 2009, AUM has experienced less significant changes. The independent consultant noted that changes in operating expenses reflect changes in business composition and business practices in response to changes in financial markets. Finally, the independent
78 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
consultant concluded that the increase in average cost and the decline in net operating margin across the Adviser since late 2008 are inconsistent with the view that there are currently reductions in average costs due to economies of scale that can be shared with the AllianceBernstein Mutual Funds managed by the Adviser through lower fees.
Previously in February 2008, the independent consultant provided the Board of Directors an update of the Deli13 study on advisory fees and various fund characteristics.14 The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.15 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund AUM, family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of the fund size and each Adviser’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE PORTFOLIO. |
With assets under management of approximately $419 billion as of September 30, 2012, the Adviser has the investment experience to manage and provide non-investment services (described in Section I) to the Strategy.
13 | The Deli study, originally published in 2002 based on 1997 data and updated for the February 2008 Presentation, may be of diminished value due to the age of the data used in the presentation and the changes experienced in the industry over the last four years. |
14 | As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since the fees may not be the product of negotiations conducted at arm’s length. See Jones V. Harris at 1429. |
15 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 79 |
The information below shows the 1 year performance return and rankings of the Strategy16 relative to its Lipper Performance Group (“PG”) and Lipper Performance Universe (“PU”)17 for the periods ended July 31, 2012.18
Strategy | Strategy Return (%) | PG Median (%) | PU Median (%) | PG Rank | PU Rank | |||||||||||||||
Bond Inflation Strategy | ||||||||||||||||||||
1 year | 4.40 | 8.59 | 8.73 | 8/11 | 18/26 |
Set forth below are the 1year and since inception net performance returns of the Strategy (in bold)19 versus its benchmark.20 Strategy and benchmark volatility and reward-to-variability ratio (“Sharpe Ratio”) information is also shown.21
Periods Ending July 31, 2012 Annualized Performance | ||||||||||||||||||||
1 Year (%) | Since Inception (%) | Annualized | Risk Period (Year) | |||||||||||||||||
Volatility (%) | Sharpe (%) | |||||||||||||||||||
Bond Inflation Strategy | 4.40 | 6.62 | 3.14 | 1.30 | 1 | |||||||||||||||
Barclays Capital 1-10yr TIPS Index | 4.84 | 6.58 | 2.71 | 1.65 | 1 | |||||||||||||||
Inception Date: January 26, 2010 |
16 | The performance returns and rankings are for the Class A shares of the Strategy. The performance returns of the Strategy were provided Lipper. |
17 | The Strategy’s PG is identical to the Strategy’s EG. The Strategy’s PU is not identical to the Strategy’s EU as the criteria for including/excluding a strategy in/from a PU are somewhat different from that of an EU. |
18 | The current Lipper investment classification/objective dictates the PG and PU throughout the life of the Strategy even if the Strategy may have had a different investment classification/objective at different points in time. |
19 | The performance returns and risk measures shown in the table are for the Class A shares of the Strategy. |
20 | The Adviser provided Strategy and benchmark performance return information for the periods through July 31, 2012. |
21 | Strategy and benchmark volatility and Sharpe Ratio information was obtained through Lipper LANA, a database maintained by Lipper. Volatility is a statistical measure of the tendency of a market price or yield to vary over time. A Sharpe Ratio is a risk adjusted measure of return that divides a fund’s return in excess of the riskless return by the fund’s standard deviation. A strategy with a greater volatility would be viewed as more risky than a strategy with equivalent performance but lower volatility; for that reason, a greater return would be demanded for the more risky fund. A strategy with a higher Sharpe Ratio would be viewed as better performing than a strategy with a lower Sharpe Ratio. |
80 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Strategy is reasonable and within the range of what would have been negotiated at arm’s-length in light of all the surrounding circumstances. This conclusion in respect of the Strategy is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: December 3, 2012
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 81 |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies
Balanced Wealth Strategy
Conservative Wealth Strategy
Wealth Appreciation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Conservative Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Asset Allocation/Multi-Asset Funds
Dynamic All Market Fund
Emerging Markets Multi-Asset Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Discovery Growth Fund**
Growth Fund
Large Cap Growth Fund
Select US Equity Portfolio
Small Cap Growth Portfolio
U.S. Strategic Research Portfolio
Global & International
Global Thematic Growth Fund
International Discovery Equity Portfolio
International Focus 40 Portfolio
International Growth Fund
Value Funds
Domestic
Core Opportunities Fund
Discovery Value Fund**
Equity Income Fund
Growth & Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Portfolio California Portfolio High Income Portfolio Massachusetts Portfolio Michigan Portfolio Minnesota Portfolio Municipal Bond Inflation Strategy | National Portfolio New Jersey Portfolio New York Portfolio Ohio Portfolio Pennsylvania Portfolio Virginia Portfolio |
Intermediate Municipal Bond Funds
Intermediate California Portfolio
Intermediate Diversified Portfolio
Intermediate New York Portfolio
Closed-End Funds
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alternatives
Global Risk Allocation Fund**
Market Neutral Strategy-Global
Market Neutral Strategy-U.S.
Real Asset Strategy
Unconstrained Bond Fund
Retirement Strategies
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,* which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
* | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
** | Prior to October 8, 2012, Global Risk Allocation Fund was named Balanced Shares. Prior to November 1, 2012, Discovery Growth Fund was named Small/Mid Cap Growth Fund and Discovery Value Fund was named Small/Mid Cap Value Fund. |
82 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
AllianceBernstein Family of Funds
NOTES
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY • | 83 |
NOTES
84 | • ALLIANCEBERNSTEIN BOND INFLATION STRATEGY |
ALLIANCEBERNSTEIN BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
BIS-0151-1012 | ![]() |
ANNUAL REPORT
AllianceBernstein
Municipal Bond Inflation Strategy
October 31, 2012
Annual Report
Investment Products Offered
•Are Not FDIC Insured •May Lose Value •Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s website at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 19, 2012
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Municipal Bond Inflation Strategy (the “Strategy”) for the annual period ended October 31, 2012.
Investment Objectives and Policies
The Strategy seeks to maximize real after-tax return for investors subject to federal income taxes, without undue risk to principal. Real return is the rate of return after adjusting for inflation. The Strategy pursues its objective by investing principally in high-quality, predominantly investment grade, municipal securities, that pay interest exempt from federal taxation. As a fundamental policy, the Strategy will invest at least 80% of its net assets in municipal securities. These securities may be subject to the federal alternative minimum tax for some taxpayers.
The Strategy will invest at least 80% of its total assets in fixed-income securities rated A or better or the equivalent by one or more national rating agencies or deemed to be of comparable credit quality by AllianceBernstein L.P. (the “Adviser”). In deciding whether to take direct or indirect exposure, the Strategy may invest up to 20% of its total assets in fixed-income securities rated BB or B or the equivalent by one or more national rating agencies (or deemed to be of comparable credit quality by the Adviser), which are not investment grade (“junk bonds”). If the rating of a fixed-income security falls below investment grade, the Strategy will not be obligated to sell the security and
may continue to hold it if, in the Adviser’s opinion, the investment is appropriate under the circumstances. The Strategy may invest in fixed-income securities with any maturity and duration.
To provide inflation protection, the Strategy will typically enter into inflation swap agreements. The Strategy may use other inflation-protected instruments. Payments to the Strategy pursuant to swap agreements will result in taxable income, either ordinary income or capital gains, rather than income exempt from federal income taxation. It is expected that the Strategy’s primary use of derivatives will be for the purpose of inflation protection.
The Strategy may also invest in forward commitments; zero coupon municipal securities and variable, floating and inverse floating rate municipal securities; certain types of mortgage related securities; and derivatives, such as options, futures, forwards and swaps.
The Strategy may also utilize leverage for investment purposes through the use of Tender Option Bonds (“TOB”) transactions. The Adviser will consider the impact of TOB’s, swap agreements and other derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
Investment Results
The table on page 6 shows the Strategy’s performance compared to its benchmark, the Barclays Capital
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 1 |
(“BC”) 1-10 year Treasury Inflation-Protected Securities (“TIPS”) Index and to the Lipper Intermediate Municipal Debt Funds Average (the “Lipper Average”). Funds in the Lipper Average have generally similar investment objectives to the Strategy, although some may have different investment policies and sales management fees.
For both the six- and 12-month periods, Class A shares of the Strategy outperformed the benchmark, before sales charges. Class A shares underperformed the Lipper Average for both periods.
Over both periods, the most significant determinants of relative returns versus the benchmark were the performance of municipal bonds versus Treasury bonds, and derivatives used to hedge inflation. Given the investment objective of after-tax returns net of inflation, the Strategy’s benchmark is the index of inflation-protected Treasury bonds, while the Strategy invests in municipal bonds. Over both periods, the Strategy outperformed as rates fell more for municipal bonds than for Treasuries. Furthermore, the Strategy’s focus on A-rated municipals versus AA- and AAA-rated tax-exempt issues further added to performance as medium-grade bonds outperformed the highest-quality bonds.
The Strategy had generally less exposure to interest rates than the benchmark. As interest rates declined over both periods, this detracted from relative performance.
The Strategy used derivatives, in the form of consumer price index (“CPI”) swaps, for hedging purposes, which added to performance on an absolute basis. As the market’s expectation of inflation increased, the value of the swaps were driven higher.
Market Review and Investment Strategy
The municipal bond market rallied over both the six- and 12- month periods ended October 31, 2012, in response to slow economic growth and increasingly accommodative monetary policy; the U.S. Federal Reserve has said it would likely keep short-term interest rates low through at least the summer of 2015, continue “Operation Twist”, which entails monthly purchases of $45 billion in long-term Treasury bonds, through the end of 2012, and begin “QE3” by purchasing an additional $40 billion per month in mortgage-backed securities to support the housing market. Strong investor demand coupled with declining supply also pushed municipal bond prices higher. Net flows into municipal funds were positive throughout the 12-month period while the volume of outstanding municipal bonds continued to shrink as issuers’ primary focus was to refinance outstanding debt at lower interest rates.
Compensation for public employees has been in the headlines as governments look to balance their budgets in a slow-growth environment. State and local government revenues rise and fall with the economy. State revenue col-
2 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
lections are just now recovering from the 2008 recession, while local government collections are still under pressure due to their greater dependence on property tax revenues. In addition, poor investment returns and reduced annual contributions have left many pension plans underfunded, causing state and local governments to increase their required pension contributions instead of spending on other goods and services. For all these reasons, in the view of the Municipal Bond Investment Team (the “Team”), state and local governments are more vulnerable than normal to an economic downturn at this point in a recovery. To reduce this vulnerability in the Strategy, the Team has limited holdings of state and local government bonds and instead has been favoring essential purpose revenue and dedicated tax-backed bonds. The Team believes these bonds are less economically sensitive and are well-insulated from the current financial challenges of state and local governments.
The large U.S. federal deficit and accumulating debt has given rise to talk of possible tax reform. The value of municipal bonds is partly determined by the value of their tax-exemption. An increase in tax rates could increase this value, while a limit on the municipal bonds’ tax exemption could reduce their value. The Strategy’s most effective defense against this uncertainty is through limiting the Strategy’s exposure to long-maturity bonds that would be most affected by changes in the tax code.
The Strategy may purchase municipal securities that are insured under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most municipal securities insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research. The ratings of most insurance companies have been downgraded and it is possible that an insurance company may become insolvent. If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of October 31, 2012, 9.6% of the Strategy’s total investments were in insured bonds. There were no investments in pre-refunded/escrowed to maturity bonds.
The Team believes that downgrades in insurance company ratings or insurance company insolvencies present limited risk to the Strategy.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 3 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The BC 1-10 Year TIPS Index does not reflect fees and expenses associated with the active management of a portfolio. The BC 1-10 Year TIPS Index represents the performance of inflation-protected securities issued by the U.S. Treasury. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
Market Risk: The value of the Strategy’s assets will fluctuate as the stock or bond market fluctuates. The value of the Strategy’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings (commonly referred to as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Strategy’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Strategy invests more of its assets in a particular state’s municipal securities, the Strategy may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes or earthquakes. The Strategy’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Strategy’s assets can decline as can the value of the Strategy’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Derivatives Risk: The Strategy’s investments in derivatives, such as swaps, futures, options and forwards, may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and may be subject to counterparty risk to a greater degree than more traditional investments. The use of inflation protection derivatives to help meet the Strategy’s investment objective may not be successful.
(Disclosures, Risks and Note about Historical Performance continued on next page)
4 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Disclosures and Risks
DISCLOSURES AND RISKS
(continued from previous page)
Leverage Risk: To the extent the Strategy uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Strategy’s investments.
Liquidity Risk: Liquidity risk exists when particular investments, such as lower-rated securities, are difficult to purchase or sell, possibly preventing the Strategy from selling out of these illiquid securities at an advantageous price. The Strategy is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.
Management Risk: The Strategy is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Strategy’s prospectus.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Strategy will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com. For Class 1 shares click on “Private Clients”, then “Investments”, then “Stocks” or “Bonds”, then “Mutual Fund Performance at a Glance”.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 3.00% maximum front-end sales charge for Class A shares; and a 1% 1 year contingent deferred sales charge for Class C shares. Class 1 and 2 shares do not carry sales charges. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 5 |
Disclosures and Risks
HISTORICAL PERFORMANCE
THE STRATEGY VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2012 | NAV Returns | |||||||||
6 Months | 12 Months | |||||||||
AllianceBernstein Municipal Bond Inflation Strategy | ||||||||||
Class 1* | 2.36% | 6.45% | ||||||||
| ||||||||||
Class 2* | 2.40% | 6.54% | ||||||||
| ||||||||||
Class A | 2.25% | 6.22% | ||||||||
| ||||||||||
Class C | 1.90% | 5.51% | ||||||||
| ||||||||||
Advisor Class Shares** | 2.50% | 6.64% | ||||||||
| ||||||||||
BC 1-10 Year TIPS Index | 2.17% | 5.17% | ||||||||
| ||||||||||
Lipper Intermediate Municipal Debt Funds Average | 2.56% | 7.51% | ||||||||
| ||||||||||
* Class 1 shares are only available to private clients of Sanford C. Bernstein & Co. LLC. Class 2 shares are only available to private clients of Sanford C. Bernstein & Co., LLC and the Adviser’s institutional clients or through other limited arrangements.
** Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. | ||||||||||
GROWTH OF A $10,000 INVESTMENT IN THE STRATEGY 1/26/10* TO 10/31/12
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Municipal Bond Inflation Strategy Class A shares (from 1/26/10* to 10/31/12) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 3.00% sales charge from the initial $10,000 investment in the Strategy and assumes the reinvestment of dividends and capital gains distributions.
* | Inception date: 1/26/10. |
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
(Historical Performance continued on next page)
6 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2012 | ||||||||||||
NAV Returns | SEC Returns | SEC Yields* | ||||||||||
Class 1 Shares** | 0.89 | % | ||||||||||
1 Year | 6.45 | % | 6.45 | % | ||||||||
Since Inception† | 4.56 | % | 4.56 | % | ||||||||
Class 2 Shares** | 0.99 | % | ||||||||||
1 Year | 6.54 | % | 6.54 | % | ||||||||
Since Inception† | 4.68 | % | 4.68 | % | ||||||||
Class A Shares | 0.57 | % | ||||||||||
1 Year | 6.22 | % | 3.03 | % | ||||||||
Since Inception† | 4.40 | % | 3.25 | % | ||||||||
Class C Shares | -0.10 | % | ||||||||||
1 Year | 5.51 | % | 4.51 | % | ||||||||
Since Inception† | 3.68 | % | 3.68 | % | ||||||||
Advisor Class Shares‡ | 0.88 | % | ||||||||||
1 Year | 6.64 | % | 6.64 | % | ||||||||
Since Inception† | 4.71 | % | 4.71 | % |
The Strategy’s current prospectus fee table shows the Strategy’s total annual operating expense ratios as 0.92%, 0.85%, 1.20%, 1.91%, 0.88% for Class 1, Class 2, Class A, Class C, and Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expense ratios, exclusive of interest expense, to 0.60%, 0.50%, 0.80%, 1.50%, 0.50% for Class 1, Class 2, Class A, Class C, and Advisor Class shares, respectively. These waivers/ reimbursements extend through January 31, 2013 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
* | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 2012. |
** | Class 1 shares are only available to private clients of Sanford C. Bernstein & Co. LLC. Class 2 shares are only available to private clients of Sanford C. Bernstein & Co., LLC and the Adviser’s institutional clients or through other limited arrangements. These share classes do not carry front end sales charges; therefore their respective NAV and SEC returns are the same. |
† | Inception date: 1/26/2010. |
‡ | These share classes are offered at NAV to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. The inception date for these share classes are listed above. |
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2012) | ||||
SEC Returns | ||||
Class 1 Shares* | ||||
1 Year | 5.85 | % | ||
Since Inception** | 4.48 | % | ||
Class 2 Shares* | ||||
1 Year | 6.04 | % | ||
Since Inception** | 4.59 | % | ||
Class A Shares | ||||
1 Year | 2.54 | % | ||
Since Inception** | 3.13 | % | ||
Class C Shares | ||||
1 Year | 3.92 | % | ||
Since Inception** | 3.57 | % | ||
Advisor Class Shares† | ||||
1 Year | 5.94 | % | ||
Since Inception** | 4.60 | % |
* | Class 1 shares are only available to private clients of Sanford C. Bernstein & Co. LLC. Class 2 shares are only available to private clients of Sanford C. Bernstein & Co., LLC and the Adviser’s institutional clients or through other limited arrangements. |
** | Inception date: 1/26/2010. |
† | These share classes are offered at NAV to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. The inception date for these share classes are listed above. |
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
8 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2012 | Ending Account Value October 31, 2012 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,022.50 | $ | 4.07 | 0.80 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.11 | $ | 4.06 | 0.80 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,019.00 | $ | 7.61 | 1.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.60 | $ | 7.61 | 1.50 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,025.00 | $ | 2.55 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.62 | $ | 2.54 | 0.50 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,023.60 | $ | 3.05 | 0.60 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.12 | $ | 3.05 | 0.60 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,024.00 | $ | 2.54 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.62 | $ | 2.54 | 0.50 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 9 |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2012 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $529.7
* | All data are as of October 31, 2012. The Strategy’s quality rating breakdown is expressed as a percentage of the Strategy’s total investments in municipal securities and may vary over time. The Strategy also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). The quality ratings are determined by using the Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the pre-refunded category includes bonds which are secured by U.S. Government Securities and therefore are deemed high-quality investment grade by the Adviser. If applicable, Not Applicable (N/A) includes non credit worthy investments; such as, equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a Nationally Recognized Statistical Rating Organization. |
10 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio Summary
PORTFOLIO OF INVESTMENTS
October 31, 2012
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 92.8% | ||||||||
Long-Term Municipal Bonds – 92.8% | ||||||||
Alabama – 2.6% | ||||||||
Alabama Pub Sch & Clg Auth | $ | 12,340 | $ | 13,978,135 | ||||
|
| |||||||
Alaska – 0.8% | ||||||||
Alaska Ind Dev & Export Auth | 400 | 465,404 | ||||||
Valdez AK Marine Terminal | 3,140 | 3,527,068 | ||||||
|
| |||||||
3,992,472 | ||||||||
|
| |||||||
Arizona – 3.0% | ||||||||
Maricopa Cnty AZ CCD GO | 2,850 | 3,185,559 | ||||||
Phoenix AZ Civic Impt Corp. | 3,330 | 4,002,960 | ||||||
Pima Cnty AZ Swr | 1,765 | 2,165,778 | ||||||
Pima Cnty AZ USD #1 GO | 2,825 | 2,913,592 | ||||||
Salt River Proj Agric Impt & Pwr Dist AZ | 3,140 | 3,871,055 | ||||||
|
| |||||||
16,138,944 | ||||||||
|
| |||||||
Arkansas – 0.2% | ||||||||
Fort Smith AR Sales & Use Tax | 815 | 819,621 | ||||||
|
| |||||||
California – 3.0% | ||||||||
California Dept Wtr Res Pwr | 1,225 | 1,253,469 | ||||||
Series 2011N | 7,125 | 7,290,585 | ||||||
California GO | 275 | 319,206 | ||||||
Series 2011A | 5,000 | 6,132,700 | ||||||
San Francisco City/Cnty CA Arpt Commn | 450 | 539,951 | ||||||
NPFGC-RE Series 2006 32F | 290 | 349,131 | ||||||
|
| |||||||
15,885,042 | ||||||||
|
|
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 11 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Colorado – 3.0% | ||||||||
Denver CO City & Cnty Arpt | $ | 375 | $ | 443,704 | ||||
Series 2011B | 4,730 | 5,027,895 | ||||||
Series 2012A | 8,395 | 9,769,710 | ||||||
Denver CO Urban Renewal Auth | 200 | 221,384 | ||||||
Regional Trnsp Dist CO | 440 | 507,228 | ||||||
|
| |||||||
15,969,921 | ||||||||
|
| |||||||
Connecticut – 0.3% | ||||||||
Connecticut GO | 1,750 | 1,798,650 | ||||||
|
| |||||||
District of Columbia – 0.3% | ||||||||
Metro Washington Arpt Auth VA | 1,495 | 1,557,237 | ||||||
|
| |||||||
Florida – 7.4% | ||||||||
Citizens Ppty Ins Corp. FL | 315 | 352,737 | ||||||
Series 2011A-1 | 1,720 | 1,871,326 | ||||||
Series 2012A-1 | 3,165 | 3,544,167 | ||||||
NPFGC Series A 5.00%, 3/01/15 | 275 | 299,720 | ||||||
Florida Brd of Ed GO | 1,970 | 2,012,906 | ||||||
Florida Brd of Ed Lottery | 1,000 | 1,031,230 | ||||||
Series 2010 C | 550 | 636,504 | ||||||
Florida Hurricane Catastr Fd Fin Corp. | 665 | 685,316 |
12 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2010A | $ | 700 | $ | 774,942 | ||||
Florida Mun Pwr Agy | 2,890 | 3,455,920 | ||||||
Florida Ports Fin Commn | 1,900 | 2,062,640 | ||||||
Florida St | 3,055 | 3,138,982 | ||||||
Greater Orlando Aviation FL | 420 | 437,249 | ||||||
Jacksonville FL Sales Tax | 1,720 | 2,071,826 | ||||||
Jacksonville FL Trnsp | 10,190 | 12,213,755 | ||||||
Lee Cnty FL Port Auth Arpt | 1,000 | 1,040,140 | ||||||
Miami Dade Cnty FL SPL Tax | 1,500 | 1,762,425 | ||||||
Tampa FL Wtr & Swr Sys | 1,565 | 1,879,753 | ||||||
|
| |||||||
39,271,538 | ||||||||
|
| |||||||
Georgia – 2.6% | ||||||||
Atlanta GA Arpt PFC | 2,500 | 2,979,050 | ||||||
Catoosa Cnty GA SD GO | 2,380 | 2,429,171 | ||||||
4.00%, 8/01/14 | 4,470 | 4,755,812 | ||||||
Georgia Mun Elec Auth | 3,045 | 3,713,834 | ||||||
|
| |||||||
13,877,867 | ||||||||
|
| |||||||
Illinois – 4.6% | ||||||||
Chicago IL Brd of Ed GO | 1,690 | 1,983,249 |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 13 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Chicago IL GO | $ | 1,165 | $ | 1,341,544 | ||||
Series 2010A | 1,975 | 2,238,465 | ||||||
Chicago IL O’Hare Intl Arpt | 1,930 | 2,196,108 | ||||||
Chicago IL Transit Auth Fed Hwy Grant | 2,425 | 2,660,031 | ||||||
Cook Cnty IL GO | 2,200 | 2,518,582 | ||||||
Illinois Finance Auth | 145 | 145,316 | ||||||
Illinois GO | 6,050 | 6,689,969 | ||||||
Series 2010 | 500 | 574,705 | ||||||
Illinois Sales Tax | ||||||||
5.00%, 6/15/17 | 1,450 | 1,715,031 | ||||||
Springfield ILL Metro San Dist | 2,170 | 2,527,898 | ||||||
|
| |||||||
24,590,898 | ||||||||
|
| |||||||
Indiana – 1.6% | ||||||||
Indiana Mun Pwr Agy | 4,965 | 6,004,825 | ||||||
Indianapolis IN Loc Bond Bank | 2,260 | 2,381,362 | ||||||
|
| |||||||
8,386,187 | ||||||||
|
| |||||||
Kentucky – 0.8% | ||||||||
Kentucky Turnpike Auth | 2,275 | 2,799,638 | ||||||
AGM | 1,410 | 1,522,715 | ||||||
|
| |||||||
4,322,353 | ||||||||
|
|
14 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Louisiana – 2.9% | ||||||||
Louisiana Gas & Fuels Tax | $ | 11,560 | $ | 14,186,669 | ||||
Orleans Parish LA Par SD GO | 910 | 936,099 | ||||||
|
| |||||||
15,122,768 | ||||||||
|
| |||||||
Massachusetts – 4.2% | ||||||||
Boston MA GO | 1,300 | 1,441,687 | ||||||
Massachusetts GO | 9,575 | 10,069,166 | ||||||
Massachusetts Mun Whsl Elec Co. | 1,430 | 1,585,484 | ||||||
Massachusetts Spl Obl | 3,000 | 3,223,170 | ||||||
Metropolitan Boston Trnsp Pkg Corp. MA | 5,025 | 5,905,319 | ||||||
|
| |||||||
22,224,826 | ||||||||
|
| |||||||
Michigan – 4.8% | ||||||||
Detroit MI City SD GO | 1,120 | 1,172,091 | ||||||
Detroit MI Swr Disp | 3,750 | 4,223,437 | ||||||
Michigan Finance Auth | 17,050 | 18,333,865 | ||||||
Univ of Michigan | 1,795 | 1,887,030 | ||||||
|
| |||||||
25,616,423 | ||||||||
|
| |||||||
Minnesota – 0.4% | ||||||||
Minnesota Hgr Ed Fac Auth | 1,295 | 1,535,209 | ||||||
Minnesota Pub Fac Auth | 750 | 761,685 | ||||||
|
| |||||||
2,296,894 | ||||||||
|
|
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 15 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Missouri – 1.5% | ||||||||
Bi-State Dev Agy MO | $ | 5,900 | $ | 6,066,498 | ||||
Springfiled MO Pub Util | 1,390 | 1,641,646 | ||||||
|
| |||||||
7,708,144 | ||||||||
|
| |||||||
Nevada – 0.3% | ||||||||
Clark Cnty NV Arpt | 775 | 916,391 | ||||||
Clark Cnty NV SD GO | 450 | 502,024 | ||||||
|
| |||||||
1,418,415 | ||||||||
|
| |||||||
New Hampshire – 1.6% | ||||||||
Manchester NH Arpt | 7,170 | 8,369,254 | ||||||
|
| |||||||
New Jersey – 0.1% | ||||||||
New Jersey EDA | 480 | 569,371 | ||||||
|
| |||||||
New York – 13.1% | ||||||||
Long Island Pwr Auth NY NPFGC | 3,500 | 3,586,485 | ||||||
Metropolitan Trnsp Auth NY | 3,635 | 4,329,939 | ||||||
Series 2012C | 9,065 | 10,887,140 | ||||||
New York NY GO | 1,700 | 1,778,353 | ||||||
New York NY Mun Wtr Fin Auth | 500 | 505,305 | ||||||
5.00%, 6/15/26 | 3,875 | 4,654,495 | ||||||
New York NY Trnsl Fin Auth | 6,830 | 8,364,906 |
16 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New York St Dormitory Auth | $ | 6,800 | $ | 6,894,248 | ||||
Series 2011C | 3,000 | 3,622,980 | ||||||
Series 2011E | 2,790 | 3,021,263 | ||||||
Series 2012B | 7,900 | 9,863,703 | ||||||
New York St Envrn Fac Corp. | 3,000 | 3,700,620 | ||||||
New York St Loc Gov Asst Corp. | 1,475 | 1,376,755 | ||||||
New York St Thruway Auth | 6,720 | 6,823,152 | ||||||
|
| |||||||
69,409,344 | ||||||||
|
| |||||||
North Carolina – 1.5% | ||||||||
North Carolina Eastern Mun Pwr Agy | 6,700 | 8,205,490 | ||||||
|
| |||||||
Ohio – 0.3% | ||||||||
Cleveland OH COP | 700 | 788,893 | ||||||
Toledo OH City Svcs Spl Assmt Notes | 725 | 726,095 | ||||||
|
| |||||||
1,514,988 | ||||||||
|
| |||||||
Oregon – 1.0% | ||||||||
Tri-County Met Trnsp Dist OR Grant Prog | 4,605 | 5,466,365 | ||||||
|
| |||||||
Pennsylvania – 5.5% | ||||||||
Allegheny Cnty PA Sani Auth | 2,250 | 2,671,357 | ||||||
Montgomery Cnty PA IDA | 475 | 566,390 | ||||||
Pennsylvania Econ Dev Fin Auth | 7,500 | 8,941,275 |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 17 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Pennsylvania GO | $ | 700 | $ | 710,836 | ||||
NPFGC-RE | 5,290 | 5,627,132 | ||||||
Pennsylvania IDA | 5,000 | 5,639,150 | ||||||
Philadelphia PA Gas Works | 1,900 | 2,033,570 | ||||||
Philadelphia PA SD GO | 1,800 | 2,091,330 | ||||||
Philadelphia PA Wtr & WstWtr AGM | 550 | 655,826 | ||||||
|
| |||||||
28,936,866 | ||||||||
|
| |||||||
Puerto Rico – 3.0% | ||||||||
Puerto Rico Elec Pwr Auth | 2,000 | 2,140,180 | ||||||
Series 2010AAA | 1,830 | 2,022,644 | ||||||
NPFGC | 3,400 | 3,768,424 | ||||||
Puerto Rico Govt Dev Bank | 3,535 | 3,704,963 | ||||||
Puerto Rico Hwy & Trnsp Auth | 4,650 | 3,702,051 | ||||||
Puerto Rico Pub Bldgs Auth | 275 | 300,190 | ||||||
|
| |||||||
15,638,452 | ||||||||
|
| |||||||
South Carolina – 2.7% | ||||||||
Renewable Water Resources Sew Sys SC | 2,570 | 3,139,846 | ||||||
South Carolina Pub Svc Auth | 9,545 | 11,364,096 | ||||||
|
| |||||||
14,503,942 | ||||||||
|
|
18 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Tennessee – 0.6% | ||||||||
Met Govt Nashville-DAV TN GO | $ | 2,385 | $ | 3,007,962 | ||||
|
| |||||||
Texas – 9.2% | ||||||||
Conroe TX ISD GO | 6,240 | 7,554,452 | ||||||
Denton TX ISD GO | 2,135 | 2,203,832 | ||||||
Garland TX GO | 500 | 593,660 | ||||||
Houston TX Arpt Sys | 2,105 | 2,486,573 | ||||||
Houston TX ISD GO | 4,345 | 4,448,367 | ||||||
Houston TX Util Sys | 2,225 | 2,332,935 | ||||||
Series 2011D | 2,735 | 3,277,159 | ||||||
Series 2011E | 6,900 | 7,540,389 | ||||||
Katy TX ISD GO | 700 | 707,399 | ||||||
Lower Colorado River Auth TX | 2,615 | 3,066,924 | ||||||
Midlothian TX ISD GO | 5,000 | 5,146,900 | ||||||
North Texas Tollway Auth TX | 3,625 | 4,380,994 | ||||||
Red River TX Hlth Facs Dev Corp. | 735 | 751,361 | ||||||
San Antonio TX ISD GO | 1,710 | 2,051,863 | ||||||
Texas Trnsp Comm | 655 | 658,164 | ||||||
Univ of Texas | 1,070 | 1,308,268 | ||||||
|
| |||||||
48,509,240 | ||||||||
|
|
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 19 |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Virginia – 5.3% | ||||||||
Fairfax Cnty VA Econ Dev Dist | $ | 6,000 | $ | 7,125,660 | ||||
Virginia College Bldg Auth | 10,550 | 11,480,833 | ||||||
Virginia Lease Pub Fac | 3,525 | 3,649,856 | ||||||
Virginia Pub Bldg Auth | 4,050 | 4,163,562 | ||||||
Virginia Trnsp Brd | 1,655 | 1,839,615 | ||||||
|
| |||||||
28,259,526 | ||||||||
|
| |||||||
Washington – 4.6% | ||||||||
Central Puget Sound WA RTA | 7,815 | 9,651,979 | ||||||
Chelan Cnty WA PUD #1 | 3,305 | 3,922,308 | ||||||
Energy Northwest WA | 680 | 830,865 | ||||||
Series 2012A | 5,450 | 6,494,886 | ||||||
King Cnty WA Swr | 2,230 | 2,349,729 | ||||||
Washington St GO | 710 | 870,432 | ||||||
|
| |||||||
24,120,199 | ||||||||
|
| |||||||
Total Municipal Obligations | 491,487,334 | |||||||
|
| |||||||
CORPORATES - INVESTMENT GRADES – 3.2% |
| |||||||
Financial Institutions – 1.8% | ||||||||
Banking – 1.5% | ||||||||
Bank of America Corp. | 1,200 | 1,311,164 | ||||||
Capital One Financial Corp. | 736 | 750,560 |
20 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Citigroup, Inc. | $ | 1,475 | $ | 1,506,083 | ||||
Goldman Sachs Group, Inc. (The) | 1,510 | 1,583,735 | ||||||
6.00%, 5/01/14 | 1,200 | 1,286,688 | ||||||
JPMorgan Chase & Co. | 1,570 | 1,597,428 | ||||||
|
| |||||||
8,035,658 | ||||||||
|
| |||||||
Finance – 0.3% | ||||||||
General Electric Capital Corp. | 1,576 | 1,619,416 | ||||||
|
| |||||||
9,655,074 | ||||||||
|
| |||||||
Industrial – 1.2% | ||||||||
Communications - Telecommunications – 0.3% |
| |||||||
Verizon Communications, Inc. | 1,446 | 1,462,049 | ||||||
|
| |||||||
Consumer Cyclical - Automotive – 0.2% | ||||||||
Daimler Finance North America LLC | 904 | 957,677 | ||||||
|
| |||||||
Consumer Cyclical - Entertainment – 0.1% |
| |||||||
Viacom, Inc. | 800 | 807,765 | ||||||
|
| |||||||
Energy – 0.1% | ||||||||
ConocoPhillips | 381 | 401,044 | ||||||
|
| |||||||
Technology – 0.5% | ||||||||
Hewlett-Packard Co. | 1,280 | 1,293,916 | ||||||
International Business Machines Corp. | 1,715 | 1,719,222 | ||||||
|
| |||||||
3,013,138 | ||||||||
|
| |||||||
6,641,673 | ||||||||
|
| |||||||
Utility – 0.2% | ||||||||
Electric – 0.2% | ||||||||
Exelon Generation Co. LLC | 831 | 873,444 | ||||||
|
| |||||||
Total Corporates - Investment Grades | 17,170,191 | |||||||
|
| |||||||
AGENCIES – 1.2% | ||||||||
U.S. Government Agency – 1.2% | ||||||||
Federal Home Loan Bank | 5,315 | 6,214,622 | ||||||
|
|
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 21 |
Portfolio of Investments
Shares | U.S. $ Value | |||||||
| ||||||||
SHORT-TERM INVESTMENTS – 1.1% | ||||||||
Investment Companies – 1.1% | ||||||||
AllianceBernstein Fixed-Income Shares, Inc. - Government STIF Portfolio, 0.15%(d) | 5,713,118 | $ | 5,713,118 | |||||
|
| |||||||
Total Investments – 98.3% | 520,585,265 | |||||||
Other assets less liabilities – 1.7% | 9,158,944 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 529,744,209 | ||||||
|
|
INFLATION (CPI) SWAP CONTRACTS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Barclays Bank PLC | $ | 7,000 | 3/16/13 | 1.795 | % | CPI | # | $ | 77,598 | |||||||||||
Barclays Bank PLC | 2,000 | 4/8/15 | 2.22 | % | CPI | # | (13,992 | ) | ||||||||||||
Barclays Bank PLC | 38,000 | 4/24/15 | 2.02 | % | CPI | # | (138,093 | ) | ||||||||||||
Barclays Bank PLC | 5,500 | 6/1/15 | 2.038 | % | CPI | # | 29,386 | |||||||||||||
Barclays Bank PLC | 6,000 | 2/26/17 | 2.37 | % | CPI | # | (53,650 | ) | ||||||||||||
Barclays Bank PLC | 3,000 | 7/19/17 | 2.038 | % | CPI | # | 83,978 | |||||||||||||
Barclays Bank PLC | 5,500 | 6/2/19 | 2.58 | % | CPI | # | (42,979 | ) | ||||||||||||
Barclays Bank PLC | 4,000 | 6/15/20 | 2.48 | % | CPI | # | 44,077 | |||||||||||||
Barclays Bank PLC | 1,500 | 8/4/20 | 2.308 | % | CPI | # | 50,747 | |||||||||||||
Barclays Bank PLC | 2,000 | 11/10/20 | 2.50 | % | CPI | # | 38,364 | |||||||||||||
Barclays Bank PLC | 6,000 | 5/4/21 | 2.845 | % | CPI | # | (115,153 | ) | ||||||||||||
Barclays Bank PLC | 3,000 | 5/12/21 | 2.815 | % | CPI | # | (51,894 | ) | ||||||||||||
Barclays Bank PLC | 14,000 | 4/3/22 | 2.663 | % | CPI | # | 69,179 | |||||||||||||
Barclays Bank PLC | 16,700 | 10/5/22 | 2.765 | % | CPI | # | 55,496 | |||||||||||||
Barclays Bank PLC | 5,400 | 3/6/27 | 2.695 | % | CPI | # | 115,143 | |||||||||||||
Citibank, NA | 2,000 | 4/15/14 | 2.06 | % | CPI | # | (1,062 | ) | ||||||||||||
Citibank, NA | 10,000 | 5/4/16 | 2.71 | % | CPI | # | (258,328 | ) | ||||||||||||
Citibank, NA | 14,000 | 5/30/17 | 2.125 | % | CPI | # | 58,794 | |||||||||||||
Citibank, NA | 11,500 | 6/21/17 | 2.153 | % | CPI | # | 38,861 | |||||||||||||
Citibank, NA | 9,000 | 6/29/22 | 2.398 | % | CPI | # | 274,917 | |||||||||||||
Citibank, NA | 5,400 | 7/19/22 | 2.40 | % | CPI | # | 177,255 | |||||||||||||
Citibank, NA | 4,000 | 8/10/22 | 2.55 | % | CPI | # | 80,560 | |||||||||||||
Deutsche Bank AG | 16,300 | 6/30/14 | 1.998 | % | CPI | # | (96,047 | ) | ||||||||||||
Deutsche Bank AG | 14,200 | 7/21/14 | 2.155 | % | CPI | # | (176,213 | ) | ||||||||||||
Deutsche Bank AG | 11,000 | 6/20/21 | 2.655 | % | CPI | # | (73,369 | ) | ||||||||||||
Deutsche Bank AG | 9,800 | 9/7/21 | 2.40 | % | CPI | # | 226,109 | |||||||||||||
JPMorgan Chase Bank, NA | 32,000 | 5/30/14 | 1.575 | % | CPI | # | (21,724 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 1,000 | 7/29/20 | 2.305 | % | CPI | # | 34,401 | |||||||||||||
JPMorgan Chase Bank, NA | 19,000 | 8/17/22 | 2.523 | % | CPI | # | 462,420 | |||||||||||||
JPMorgan Chase Bank, NA | 1,400 | 6/30/26 | 2.89 | % | CPI | # | (23,173 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 3,300 | 7/21/26 | 2.935 | % | CPI | # | (83,277 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 2,400 | 10/3/26 | 2.485 | % | CPI | # | 120,733 |
22 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Portfolio of Investments
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments by the | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
JPMorgan Chase Bank, NA | $ | 5,400 | 11/14/26 | 2.488 | % | CPI | # | $ | 268,133 | |||||||||||
JPMorgan Chase Bank, NA | 4,850 | 12/23/26 | 2.484 | % | CPI | # | 273,392 | |||||||||||||
Morgan Stanley Capital Services LLC | 1,000 | 5/6/13 | 1.95 | % | CPI | # | 11,945 | |||||||||||||
Morgan Stanley Capital Services LLC | 9,000 | 10/28/13 | 1.61 | % | CPI | # | 241,066 | |||||||||||||
Morgan Stanley Capital Services LLC | 22,000 | 10/3/14 | 1.53 | % | CPI | # | 252,216 | |||||||||||||
Morgan Stanley Capital Services LLC | 6,000 | 4/5/16 | 2.535 | % | CPI | # | (70,781 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 2,000 | 10/14/20 | 2.37 | % | CPI | # | 73,162 | |||||||||||||
Morgan Stanley Capital Services LLC | 13,000 | 5/23/21 | 2.68 | % | CPI | # | (35,587 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 5,000 | 8/15/26 | 2.885 | % | CPI | # | (79,276 | ) | ||||||||||||
|
| |||||||||||||||||||
$ | 1,823,334 | |||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
(a) | Variable rate coupon, rate shown as of October 31, 2012. |
(b) | When-Issued or delayed delivery security. |
(c) | An auction rate security whose interest rate resets at each auction date. Auctions are typically held every week or month. The rate shown is as of October 31, 2012 and the aggregate market value of this security amounted to $1,376,755 or 0.26% of net assets. |
(d) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
As of October 31, 2012, the Fund held 9.5% of net assets in insured bonds (of this amount 0.0% represents the Fund’s holding in pre-refunded or escrowed to maturity bonds).
Glossary:
AGM – Assured Guaranty Municipal
AMBAC – Ambac Assurance Corporation
CCD – Community College District
COP – Certificate of Participation
EDA – Economic Development Agency
GO – General Obligation
IDA – Industrial Development Authority/Agency
ISD – Independent School District
NPFGC – National Public Finance Guarantee Corporation
NPFGC-RE – National Public Finance Guarantee Corporation Reinsuring FGIC
PFC – Passenger Facility Charge
PUD – Public Utility District
RTA – Regional Transportation Authority
SD – School District
SRF – State Revolving Fund
USD – Unified School District
See notes to financial statements.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 23 |
Portfolio of Investments
STATEMENT OF ASSETS & LIABILITIES
October 31, 2012
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $497,026,234) | $ | 514,872,147 | ||
Affiliated issuers (cost $5,713,118) | 5,713,118 | (a) | ||
Interest and dividends receivable | 6,223,821 | |||
Receivable for capital stock sold | 4,337,604 | |||
Unrealized appreciation on inflation swap contracts | 3,157,932 | |||
Receivable for investment securities sold | 165,000 | |||
|
| |||
Total assets | 534,469,622 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased | 1,758,000 | |||
Unrealized depreciation on inflation swap contracts | 1,334,598 | |||
Payable for capital stock redeemed | 637,959 | |||
Collateral received from broker | 561,000 | |||
Advisory fee payable | 186,659 | |||
Distribution fee payable | 69,122 | |||
Administrative fee payable | 23,563 | |||
Transfer Agent fee payable | 1,478 | |||
Accrued expenses | 153,034 | |||
|
| |||
Total liabilities | 4,725,413 | |||
|
| |||
Net Assets | $ | 529,744,209 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 49,095 | ||
Additional paid-in capital | 508,862,837 | |||
Undistributed net investment income | 308,622 | |||
Accumulated net realized gain on investment transactions | 854,408 | |||
Net unrealized appreciation on investments | 19,669,247 | |||
|
| |||
$ | 529,744,209 | |||
|
|
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 79,735,232 | 7,383,011 | $ | 10.80 | * | ||||||
| ||||||||||||
C | $ | 35,435,749 | 3,288,170 | $ | 10.78 | |||||||
| ||||||||||||
Advisor | $ | 85,780,770 | 7,938,886 | $ | 10.81 | |||||||
| ||||||||||||
1 | $ | 236,284,774 | 21,912,039 | $ | 10.78 | |||||||
| ||||||||||||
2 | $ | 92,507,684 | 8,573,146 | $ | 10.79 | |||||||
|
(a) | Includes investment of cash collateral of $561,000 received from broker for OTC Derivatives. |
* | The maximum offering price per share for Class A shares was $11.13 which reflects a sales charge of 3.0%. |
See notes to financial statements.
24 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Statement of Assets & Liabilities
STATEMENT OF OPERATIONS
Year Ended October 31, 2012
Investment Income | ||||||||
Interest | $ | 8,743,731 | ||||||
Dividends—Affiliated issuers | 10,893 | $ | 8,754,624 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 2,049,500 | |||||||
Distribution fee—Class A | 215,000 | |||||||
Distribution fee—Class C | 304,304 | |||||||
Distribution fee—Class 1 | 173,346 | |||||||
Transfer agency—Class A | 13,648 | |||||||
Transfer agency—Class C | 6,681 | |||||||
Transfer agency—Advisor Class | 13,140 | |||||||
Transfer agency—Class 1 | 17,042 | |||||||
Transfer agency—Class 2 | 6,453 | |||||||
Custodian | 164,045 | |||||||
Registration fees | 143,787 | |||||||
Administrative | 81,271 | |||||||
Audit | 43,642 | |||||||
Printing | 41,673 | |||||||
Legal | 40,686 | |||||||
Directors’ fees | 10,801 | |||||||
Miscellaneous | 16,624 | |||||||
|
| |||||||
Total expenses | 3,341,643 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (598,023 | ) | ||||||
|
| |||||||
Net expenses | 2,743,620 | |||||||
|
| |||||||
Net investment income | 6,011,004 | |||||||
|
| |||||||
Realized and Unrealized Gain on Investment Transactions | ||||||||
Net realized gain on: | ||||||||
Investment transactions | 328,758 | |||||||
Swap contracts | 538,146 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 14,444,958 | |||||||
Swap contracts | 2,743,969 | |||||||
|
| |||||||
Net gain on investment transactions | 18,055,831 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 24,066,835 | ||||||
|
|
See notes to financial statements.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 25 |
Statement of Operations
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||
Increase in Net Assets from Operations | ||||||||
Net investment income | $ | 6,011,004 | $ | 2,363,084 | ||||
Net realized gain on investment transactions | 866,904 | 563,350 | ||||||
Net change in unrealized appreciation/depreciation of investments | 17,188,927 | 2,256,836 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 24,066,835 | 5,183,270 | ||||||
Dividends and Distributions to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (926,220 | ) | (739,996 | ) | ||||
Class C | (186,712 | ) | (157,851 | ) | ||||
Advisor Class | (1,102,559 | ) | (459,343 | ) | ||||
Class 1 | (2,576,922 | ) | (657,636 | ) | ||||
Class 2 | (1,029,039 | ) | (282,095 | ) | ||||
Net realized gain on investment transactions | ||||||||
Class A | (122,501 | ) | (60,961 | ) | ||||
Class C | (48,220 | ) | (23,413 | ) | ||||
Advisor Class | (91,970 | ) | (24,872 | ) | ||||
Class 1 | (218,955 | ) | (18 | ) | ||||
Class 2 | (83,342 | ) | (10,009 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 226,653,362 | 220,275,764 | ||||||
|
|
|
| |||||
Total increase | 244,333,757 | 223,042,840 | ||||||
Net Assets | ||||||||
Beginning of period | 285,410,452 | 62,367,612 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $308,622 and $114,377, respectively) | $ | 529,744,209 | $ | 285,410,452 | ||||
|
|
|
|
See notes to financial statements.
26 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Statement of Changes in Net Assets
NOTES TO FINANCIAL STATEMENTS
October 31, 2012
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of five portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio, the Real Asset Strategy Portfolio and the Limited Duration High Income Portfolio. They are each diversified Portfolios, with the exception of the Limited Duration High Income Portfolio, which is non-diversified. The Limited Duration High Income Portfolio commenced operations on December 7, 2011. Each Portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the Municipal Bond Inflation Strategy Portfolio. The Municipal Bond Inflation Strategy Portfolio (the “Strategy”) offers Class A, Class C, Advisor Class, Class 1 and Class 2 shares. Class 1 shares are sold only to the private clients of Sanford C. Bernstein & Co. LLC by its registered representatives. Class R, Class K and Class I shares have been authorized by the Strategy but are not currently being offered. Class A shares are sold with a front-end sales charge of up to 3.0% for purchases not exceeding $500,000. With respect to purchases of $500,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Strategy.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows: Securities listed on a national securities
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 27 |
Notes to Financial Statements
exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures contracts are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Investments in money market funds are valued at their net asset value each day.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Strategy may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Strategy values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Strategy would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value,
28 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset (including those valued based on their market values as described in Note 1 above) or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Strategy. Unobservable inputs reflect the Strategy’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Strategy’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 29 |
Notes to Financial Statements
The following table summarizes the valuation of the Strategy’s investments by the above fair value hierarchy levels as of October 31, 2012:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 490,590,657 | $ | 896,677 | $ | 491,487,334 | |||||||
Corporates – Investment Grades | – 0 | – | 17,170,191 | – 0 | – | 17,170,191 | ||||||||||
Agencies | – 0 | – | 6,214,622 | – 0 | – | 6,214,622 | ||||||||||
Short-Term Investments | 5,713,118 | – 0 | – | – 0 | – | 5,713,118 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 5,713,118 | 513,975,470 | 896,677 | 520,585,265 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets: | ||||||||||||||||
Inflation (CPI) Swap Contracts | – 0 | – | – 0 | – | 3,157,932 | 3,157,932 | ||||||||||
Liabilities: | ||||||||||||||||
Inflation (CPI) Swap Contracts | – 0 | – | – 0 | – | (1,334,598 | ) | (1,334,598 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total+ | $ | 5,713,118 | $ | 513,975,470 | $ | 2,720,011 | $ | 522,408,599 | ||||||||
|
|
|
|
|
|
|
|
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. |
+ | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Strategy recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Long-Term Municipal | Inflation (CPI) Swap | Total | ||||||||||
Balance as of 10/31/11 | $ | 268,665 | $ | – 0 | – | $ | 268,665 | |||||
Accrued discounts/(premiums) | 6,447 | – 0 | – | 6,447 | ||||||||
Realized gain (loss) | 17,094 | – 0 | – | 17,094 | ||||||||
Change in unrealized appreciation/depreciation | 8,896 | | 3,281,979 | | 3,290,875 | |||||||
Purchases | 735,000 | – 0 | – | 735,000 | ||||||||
Sales | (139,425 | ) | – 0 | – | (139,425 | ) | ||||||
Transfers in to Level 3+ | | – 0 | – | (1,458,645 | ) | (1,458,645 | ) | |||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/12 | $ | 896,677 | $ | 1,823,334 | $ | 2,720,011 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from Investments held as of 10/31/12* | $ | 15,737 | $ | 3,281,979 | $ | 3,279,716 | ||||||
|
|
|
|
|
|
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations. |
+ | There were de minimis transfers under 1% of net assets during the reporting period. |
The Adviser has established a Valuation Committee (the “Committee”) which is responsible for overseeing the pricing and valuation of all securities held in the Strategy. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including
30 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable comfort over the accuracy of prices including: 1) periodic vendor due diligence meetings, review methodologies, new developments, process at vendors, 2) daily compare of security valuation versus prior day for all fixed income securities that exceed established thresholds, 3) monthly multi-source pricing compares, reviewed and submitted to the Committee, and 4) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, there are several processes outside of the pricing process that are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Taxes
It is the Strategy’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Strategy’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (all years since inception of the Strategy) and has concluded that no provision for income tax is required in the Strategy’s financial statements.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Strategy is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 31 |
Notes to Financial Statements
Strategy amortizes premiums and accretes original issue discounts and market discounts as adjustments to interest income.
5. Class Allocations
All income earned and expenses incurred by the Strategy are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Strategy represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Strategy in proportion to each Strategy’s respective net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
6. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Strategy pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Strategy’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to .80%, 1.50%, .50%, .60% and .50% of the daily average net assets for the Class A, Class C, Advisor Class, Class 1 and Class 2 shares, respectively. Under the agreement, fees waived and expenses borne by the Adviser are subject to repayment by the Strategy until January 26, 2013. No repayment will be made that would cause the Strategy’s total annualized operating expenses to exceed the net fee percentage set forth above, or which would exceed the amount of offering expenses as recorded by the Strategy before January 26, 2011. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2013 and then may be extended by the Adviser for additional one-year terms. For the year ended October 31, 2012, such reimbursement amounted to $598,023, which is subject to repayment, not to exceed the amount of offering expenses.
Pursuant to the investment advisory agreement, the Strategy may reimburse the Adviser for certain legal and accounting services provided to the Strategy by the Adviser. For the year ended October 31, 2012, the reimbursement for such services amounted to $81,271.
32 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
The Strategy compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Strategy. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $18,013 for the year ended October 31, 2012.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Strategy’s shares. The Distributor has advised the Strategy that it has retained front-end sales charges of $1,300 from the sale of Class A shares and received $35,047 and $9,272 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended October 31, 2012.
The Strategy may invest in the AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio (“Government STIF Portfolio”), an open-end management investment company managed by the Adviser. The Government STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Strategy’s transactions in shares of the Government STIF Portfolio for the year ended October 31, 2012 is as follows:
Market Value | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2012 (000) | Dividend Income (000) | ||||||||||||
$ 5,807 | $ | 214,513 | $ | 214,607 | $ | 5,713 | $ | 11 |
NOTE C
Distribution Services Agreement
The Strategy has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Strategy pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Strategy’s average daily net assets attributable to Class A shares, 1% of the Strategy’s average daily net assets attributable to Class C shares and .10% of the Strategy’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class and Class 2 shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Strategy’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Strategy in the amount of $249,611 and $686,075 for Class C and Class 1 shares, respectively. While such costs may be recovered from the Strategy in future periods so long as the Agreement is in
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 33 |
Notes to Financial Statements
effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Strategy’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2012 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 265,728,518 | $ | 30,034,269 | ||||
U.S. government securities | 8,394,288 | 8,363,601 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding swap transactions) are as follows:
Cost | $ | 502,739,352 | ||
|
| |||
Gross unrealized appreciation | $ | 17,881,892 | ||
Gross unrealized depreciation | (35,979 | ) | ||
|
| |||
Net unrealized appreciation | $ | 17,845,913 | ||
|
|
1. Derivative Financial Instruments
The Strategy may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivatives utilized by the Strategy, as well as the methods in which they may be used are:
• | Swap Agreements |
The Strategy may enter into swaps to hedge its exposure to interest rates or credit risk. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Strategy in accordance with the terms of the respective swap agreements to provide value and recourse to the Strategy or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by
34 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
the failure of a counterparty is generally limited to the net interim payment to be received by the Strategy, and/or the termination value at the end of the contract. Therefore, the Strategy considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Strategy and the counterparty and by the posting of collateral by the counterparty to the Strategy to cover the Strategy’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Strategy accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swap contracts. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the statement of operations.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the net asset value, or NAV, of a Strategy against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
During the year ended October 31, 2012, the Strategy held inflation (CPI) swap contracts for hedging purposes.
Documentation governing the Strategy’s OTC derivatives may contain provisions for early termination of such transaction in the event the net assets of the Strategy decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Strategy’s counterparty has the right to terminate such transaction and require the Strategy to pay or receive a settlement amount in connection with the terminated transaction. As of October 31, 2012, the Strategy had OTC derivatives with contingent features in net liability positions in the amount of $119,520. If a trigger event had occurred at October 31, 2012, for those derivatives in a net liability position, an amount of $119,520 would be required to be posted by the Strategy.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 35 |
Notes to Financial Statements
At October 31, 2012, the Strategy had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Unrealized appreciation on inflation swap contracts | $ | 3,157,932 | | Unrealized depreciation on inflation swap contracts | $ | 1,334,598 | | ||||
|
|
|
| |||||||||
Total | $ | 3,157,932 | $ | 1,334,598 | ||||||||
|
|
|
|
The effect of derivative instruments on the statement of operations for the year ended October 31, 2012:
Derivative Type | Location of Gain or (Loss) on | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | $ | 538,146 | $ | 2,743,969 | |||||
|
|
|
| |||||||
Total | $ | 538,146 | $ | 2,743,969 | ||||||
|
|
|
|
The following table represents the volume of the Strategy’s derivative transactions during the year ended October 31, 2012:
Inflation Swap Contracts: | ||||
Average notional amount | $ | 267,296,154 |
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for Class A, Class C, Advisor Class, Class 1 and Class 2 were as follows:
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended 2011 | |||||||||||||||||
|
| |||||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 4,102,533 | 5,142,328 | $ | 43,442,993 | $ | 52,360,160 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 72,554 | 54,868 | 766,041 | 553,410 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (3,029,718 | ) | (1,753,553 | ) | (31,985,941 | ) | (17,863,298 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 1,145,369 | 3,443,643 | $ | 12,223,093 | $ | 35,050,272 | ||||||||||||||
| ||||||||||||||||||||
36 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended 2011 | |||||||||||||||||
|
| |||||||||||||||||||
Class C | ||||||||||||||||||||
Shares sold | 1,433,167 | 1,500,701 | $ | 15,136,166 | $ | 15,313,770 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 17,757 | 14,956 | 186,685 | 149,935 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (486,097 | ) | (363,624 | ) | (5,152,933 | ) | (3,648,199 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 964,827 | 1,152,033 | $ | 10,169,918 | $ | 11,815,506 | ||||||||||||||
| ||||||||||||||||||||
Advisor Class | ||||||||||||||||||||
Shares sold | 5,902,266 | 3,278,789 | $ | 62,380,255 | $ | 33,508,137 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 77,611 | 33,958 | 821,381 | 344,191 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (2,103,271 | ) | (469,384 | ) | (22,379,392 | ) | (4,799,372 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 3,876,606 | 2,843,363 | $ | 40,822,244 | $ | 29,052,956 | ||||||||||||||
| ||||||||||||||||||||
Class 1 | ||||||||||||||||||||
Shares sold | 13,680,419 | 11,632,224 | $ | 144,989,020 | $ | 119,044,000 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 113,453 | 4,161 | 1,200,618 | 42,866 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (2,741,573 | ) | (777,645 | ) | (29,072,156 | ) | (8,021,647 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 11,052,299 | 10,858,740 | $ | 117,117,482 | $ | 111,065,219 | ||||||||||||||
| ||||||||||||||||||||
Class 2 | ||||||||||||||||||||
Shares sold | 5,129,537 | 4,736,196 | $ | 54,427,562 | $ | 48,492,929 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 50,466 | 7,316 | 533,805 | 73,754 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (815,266 | ) | (1,531,103 | ) | (8,640,742 | ) | (15,274,872 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 4,364,737 | 3,212,409 | $ | 46,320,625 | $ | 33,291,811 | ||||||||||||||
|
NOTE F
Risks Involved in Investing in the Strategy
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Strategy’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Strategy’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 37 |
Notes to Financial Statements
for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the real value of the Strategy’s assets can decline as can the real value of the Strategy’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Strategy’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Strategy invests more of its assets in a particular state’s municipal securities, the Strategy may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes or earthquakes. The Strategy’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Derivatives Risk—The Strategy may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Strategy enters into contracts that contain a variety of indemnifications. The Strategy’s maximum exposure under these arrangements is unknown. However, the Strategy has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Strategy has not accrued any liability in connection with these indemnification provisions.
38 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Strategy, participate in a $140 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Strategy did not utilize the Facility during the year ended October 31, 2012.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 892,092 | $ | 233,340 | ||||
Long-term capital gains | 14,487 | –0 | – | |||||
|
|
|
| |||||
Total taxable distributions | 906,579 | 233,340 | ||||||
Tax exempt distributions | 5,479,861 | 2,182,854 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 6,386,440 | $ | 2,416,194 | ||||
|
|
|
|
As of October 31, 2012, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 341,949 | ||
Undistributed ordinary income | 247,370 | |||
Undistributed capital gains | 607,038 | |||
Unrealized appreciation/(depreciation) | 19,669,247 | |||
|
| |||
Total accumulated earnings/(deficit) | $ | 20,865,604 | (a) | |
|
|
(a) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the amortization of offering costs. |
For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-enactment capital losses must be utilized prior to the pre-enactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of October 31, 2012, the Strategy did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of Treasury inflation-protected securities resulted in a net increase in
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 39 |
Notes to Financial Statements
undistributed net investment income and a net decrease in accumulated net realized gain on investment transactions. These reclassifications had no effect on net assets.
NOTE I
Recent Accounting Pronouncement
In December 2011, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) related to disclosures about offsetting assets and liabilities in financial statements. The amendments in this update require an entity to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective during interim or annual reporting periods beginning on or after January 1, 2013. At this time, management is evaluating the implication of this ASU and its impact on the financial statements has not been determined.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Strategy’s financial statements through this date.
40 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||
Year Ended October 31, | January 26 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.32 | $ 10.09 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .14 | .16 | .11 | |||||||||
Net realized and unrealized gain on investment transactions | .50 | .26 | .06 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .64 | .42 | .17 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.14 | ) | (.17 | ) | (.08 | ) | ||||||
Distributions from net realized gain on investment transactions | (.02 | ) | (.02 | ) | – 0 | – | ||||||
|
| |||||||||||
Total dividends and distributions | (.16 | ) | (.19 | ) | (.08 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 10.80 | $ 10.32 | $ 10.09 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(d) | 6.22 | % | 4.24 | % | 1.70 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $79,735 | $64,342 | $28,200 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .80 | % | .80 | % | .80 | %(e) | ||||||
Expenses, before waivers/reimbursements | .95 | % | 1.20 | % | 2.15 | %(e) | ||||||
Net investment income(b) | 1.34 | % | 1.57 | % | 1.43 | %(e) | ||||||
Portfolio turnover rate | 10 | % | 26 | % | 1 | % |
See footnote summary on page 45.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 41 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||
Year Ended October 31, | January 26 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.30 | $ 10.08 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .07 | .09 | .06 | |||||||||
Net realized and unrealized gain on investment transactions | .50 | .25 | .06 | |||||||||
|
|
|
|
|
| |||||||
Net increase in net asset value from operations | .57 | .34 | .12 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.07 | ) | (.10 | ) | (.04 | ) | ||||||
Distributions from net realized gain on investment transactions | (.02 | ) | (.02 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Total dividends and distributions | (.09 | ) | (.12 | ) | (.04 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value, end of period | $ 10.78 | $ 10.30 | $ 10.08 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(d) | 5.51 | % | 3.45 | % | 1.23 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $35,436 | $23,919 | $11,804 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.50 | % | 1.50 | % | 1.50 | %(e) | ||||||
Expenses, before waivers/reimbursements | 1.65 | % | 1.91 | % | 2.76 | %(e) | ||||||
Net investment income(b) | .64 | % | .87 | % | .78 | %(e) | ||||||
Portfolio turnover rate | 10 | % | 26 | % | 1 | % |
See footnote summary on page 45.
42 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||
Year Ended October 31, | January 26 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 10.32 | $ 10.10 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .17 | .19 | .12 | |||||||||
Net realized and unrealized gain on investment transactions | .51 | .25 | .08 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .68 | .44 | .20 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.17 | ) | (.20 | ) | (.10 | ) | ||||||
Distributions from net realized gain on investment transactions | (.02 | ) | (.02 | ) | – 0 | – | ||||||
|
| |||||||||||
Total dividends and distributions | (.19 | ) | (.22 | ) | (.10 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 10.81 | $ 10.32 | $ 10.10 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(d) | 6.64 | % | 4.44 | % | 1.97 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $85,781 | $41,924 | $12,310 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .50 | % | .50 | % | .50 | %(e) | ||||||
Expenses, before waivers/reimbursements | .65 | % | .88 | % | 1.57 | %(e) | ||||||
Net investment income(b) | 1.63 | % | 1.85 | % | 1.81 | %(e) | ||||||
Portfolio turnover rate | 10 | % | 26 | % | 1 | % |
See footnote summary on page 45.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 43 |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||
Year Ended October 31, | January 26 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 10.30 | $ 10.08 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .16 | .17 | .11 | |||||||||
Net realized and unrealized gain on investment transactions | .50 | .27 | .07 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .66 | .44 | .18 | |||||||||
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.16 | ) | (.20 | ) | (.10 | ) | ||||||
Distributions from net realized gain on investment transactions | (.02 | ) | (.02 | ) | – 0 | – | ||||||
|
| |||||||||||
Total dividends and distributions | (.18 | ) | (.22 | ) | (.10 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 10.78 | $ 10.30 | $ 10.08 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(d) | 6.45 | % | 4.40 | % | 1.78 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $236,285 | $111,857 | $10 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .60 | % | .60 | % | .60 | %(e) | ||||||
Expenses, before waivers/reimbursements | .74 | % | .92 | % | 2.70 | %(e) | ||||||
Net investment income(b) | 1.54 | % | 1.66 | % | 1.38 | %(e) | ||||||
Portfolio turnover rate | 10 | % | 26 | % | 1 | % |
See footnote summary on page 45.
44 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||
Year Ended October 31, | January 26 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.31 | $ 10.08 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .17 | .17 | .11 | |||||||||
Net realized and unrealized gain on investment transactions | .50 | .28 | .07 | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .67 | .45 | .18 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends and Distributions | ||||||||||||
Dividends from net investment income | (.17 | ) | (.20 | ) | (.10 | ) | ||||||
Distributions from net realized gain on investment transactions | (.02 | ) | (.02 | ) | – 0 | – | ||||||
|
| |||||||||||
Total dividends and distributions | (.19 | ) | (.22 | ) | (.10 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 10.79 | $ 10.31 | $ 10.08 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(d) | 6.54 | % | 4.54 | % | 1.85 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $ 92,507 | $ 43,368 | $ 10,044 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .50 | % | .50 | % | .50 | % (e) | ||||||
Expenses, before waivers/reimbursements | .64 | % | .85 | % | 2.61 | %(e) | ||||||
Net investment income(b) | 1.64 | % | 1.77 | % | 1.49 | %(e) | ||||||
Portfolio turnover rate | 10 | % | 26 | % | 1 | % |
(a) | Commencement of operations. |
(b) | Net of fees waived and expenses reimbursed by the Adviser. |
(c) | Based on average shares outstanding. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | Annualized. |
See notes to financial statements.
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 45 |
Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc.
and Shareholders of the AllianceBernstein Municipal Bond Inflation Strategy Portfolio
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of AllianceBernstein Municipal Bond Inflation Strategy Portfolio (the “Strategy”) (one of the portfolios constituting AllianceBernstein Bond Fund, Inc.), as of October 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and the period January 26, 2010 (commencement of operations) through October 31, 2010. These financial statements and financial highlights are the responsibility of the Strategy’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Strategy’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Strategy’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2012 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Municipal Bond Inflation Strategy Portfolio of AllianceBernstein Bond Fund, Inc. at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of two years in the period then ended and the period January 26, 2010 (commencement of operations) through October 31, 2010, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 27, 2012
46 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Report of Independent Registered Public Accounting Firm
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner, Jr.(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Michael G. Brooks(2), Vice President Robert (Guy) B. Davidson III(2), Vice President | Wayne D. Godlin(2), Vice President Terrance T. Hults(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Strategy’s portfolio are made by the Adviser’s Municipal Bond Investment Team. Messrs. Michael G. Brooks, Robert “Guy” B. Davidson III, Wayne D. Godlin and Terrance T. Hults are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 47 |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, + 1345 Avenue of the Americas New York, New York 10105 52 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 101 | None |
48 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board (1998) | Investment Adviser and an Independent Consultant since prior to 2007. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 101 | None | |||||
John H. Dobkin, # 70 (1998) | Independent Consultant since prior to 2007. Formerly, President of Save Venice, Inc. (preservation organization) from 2001-2002, Senior Advisor from June 1999 – June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989 – May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 101 | None |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 49 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 68 (2005) | Private Investor since prior to 2007. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, Director of the Prudential mutual funds and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 101 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2007 and Prospect Acquisition Corp. (financial services) from 2007 until 2009 | |||||
D. James Guzy, # 76 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2007. He was a director of Intel Corporation (semi-conductors) from 1969 until 2008, and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 101 | Cirrus Logic Corporation (semi-conductors) and PLX Technology (semi-conductors) since prior to 2007 and Intel Corporation (semi-conductors) since prior to 2007 until 2008 |
50 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 64 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002 – May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 101 | None |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 51 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, # 60 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committee, of the AllianceBernstein Funds since 2008. | 101 | None |
52 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 71 (2005) | Private Investor since prior to 2007. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003-2005, and President and CEO, 2005-2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 101 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2007 | |||||
Earl D. Weiner, # 73 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP, and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of the Funds. | 101 | None |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 53 |
Management of the Fund
* | The address for each of the Strategy’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Strategy’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Strategy. |
+ | Mr. Keith is an “interested person” of the Strategy as defined in the “40 Act,” due to his position as a Senior Vice President of the Adviser. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
54 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
Management of the Fund
Officer Information
Certain information concerning the Strategy’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 52 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 67 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Michael G. Brooks 64 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Robert “Guy” B. Davidson III 51 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Wayne D. Godlin 51 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since December 2009. Prior thereto, he was an investment manager and a Managing Director of Van Kampen Asset Management with which he had been associated since prior to 2007. | ||
Terrance T. Hults 46 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Emilie D. Wrapp 57 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2007. | ||
Joseph J. Mantineo 53 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2007. | ||
Phyllis J. Clarke 51 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2007. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 55 |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and AllianceBernstein Bond Fund, Inc. (the “Fund”) in respect of AllianceBernstein Municipal Bond Inflation Strategy (“Strategy”).2 The evaluation of the Investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund, for the Directors of the Fund, as required by the September 1, 2004 Assurance of Discontinuance (“AoD”) between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Strategy which was provided to the Directors in connection with their review of the proposed approval of the continuance of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Strategy grows larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Strategy. |
These factors, with the exception of the first factor, are generally referred to as the “Gartenberg factors,” which were articulated by the United States Court of Appeals for the Second Circuit in 1982. Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (2d Cir. 1982). On March 30, 2010, the Supreme Court held the Gartenberg decision was correct in its basic formulation of what §36(b) requires: to face liability under §36(b), “an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable
1 | The Senior Officer’s fee evaluation was completed on October 25, 2012 and discussed with the Board of Directors on November 6-8, 2012. |
2 | Future references to the Fund or the Strategy do not include “AllianceBernstein.” |
56 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
relationship to the services rendered and could not have been the product of arm’s length bargaining.” Jones v. Harris Associates L.P., 130 S. Ct. 1418 (2010). In Jones, the Court stated the Gartenberg approach fully incorporates the correct understanding of fiduciary duty within the context of section 36(b) and noted with approval that “Gartenberg insists that all relevant circumstances be taken into account” and “uses the range of fees that might result from arm’s length bargaining as the benchmark for reviewing challenged fees.”3
PORTFOLIO ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS
The Adviser proposed that the Strategy pay the advisory fee set forth in the table below for receiving the services to be provided pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser’s settlement with the NYAG in December 2003, is based on a master schedule that contemplates eight categories of funds with almost all funds in each category having the same advisory fee schedule.4
Strategy | Category | Advisory Fee Based on % of Average Daily Net Assets | Net Assets 09/30/12 ($MM) | |||||
Municipal Bond Inflation Strategy | High Income | 50 bp on 1st $2.5 billion 45 bp on next $2.5 billion 40 bp on the balance | $ | 509.8 |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Strategy. During the Strategy’s most recently completed fiscal year, the Adviser was entitled to receive $75,639 (0.05% of the Strategy’s average daily net assets) for such services, but waived the amount in its entirety.
The Adviser agreed to waive that portion of its advisory fees and/or reimburse the Strategy for that portion of the Strategy’s total operating expenses to the degree necessary to limit the Strategy’s expense ratios to the amounts set forth below for the Strategy’s current fiscal year. The waiver is terminable by the Adviser prior to the Strategy’s new Prospectus date upon at least 60 days written notice. In addition, set forth below are the Strategy’s gross expense ratios, annualized for the most recent semi-annual period:
Strategy | Expense Cap Pursuant to Expense Limitation Undertaking | Gross Expense Ratio5 | Fiscal Year End | |||||||||
Municipal Bond Inflation Strategy | Advisor Class A Class C Class 1 Class 2 |
| 0.50 0.80 1.50 0.60 0.50 | % % % % % |
| 0.67 0.96 1.67 0.76 0.66 | % % % % % | October 31 (ratio as of April 30, 2012) |
3 | Jones v. Harris at 1427. |
4 | Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser’s settlement with the NYAG. |
5 | Annualized. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 57 |
I. | ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Strategy that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes–Oxley Act of 2002, and coordinating with and monitoring the Strategy’s third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Strategy are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, the Adviser is entitled to be reimbursed for providing some of these services. Also, retail mutual funds managed by the Adviser are widely held and accordingly, servicing the Strategy’s investors is more time consuming and labor intensive compared to servicing institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly if the Strategy is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, the Supreme Court has indicated consideration should be given to the advisory fees charged to institutional accounts with a similar investment style as the Strategy.6
6 | The Supreme Court stated that “courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but the courts must be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v. Harris at 1428. |
58 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
However, with respect to the Strategy, the Adviser represented that there is no category in the Form ADV for institutional products that have a substantially similar investment styles as the Strategy.
The Adviser represented that it does not sub-advise any registered investment companies that have a similar investment strategy as the Strategy.
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the Adviser, compared the fees charged to the Strategy with fees charged to other investment companies for similar services offered by other investment advisers.7 Lipper’s analysis included the comparison of the Strategy’s contractual management fee, estimated at the approximate current asset level of the Strategy, to the median of the Strategy’s Lipper Expense Group (“EG”)8 and the Strategy’s contractual management fee ranking.9
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, expense components and attributes. An EG will typically consist of seven to twenty funds.
Strategy | Contractual Management Fee (%) | Lipper Expense Group Median (%) | Rank | |||||||||
Municipal Bond Inflation Strategy | 0.500 | 0.538 | 3/10 |
7 | The Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since “these comparisons are problematic because these fees, like those challenged, may not be the product of negotiations conducted at arm’s length.” Jones v. Harris at 1429. |
8 | Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes. There are limitations to Lipper expense category data because different funds categorize expenses differently. |
9 | The contractual management fee is calculated by Lipper using the Strategy’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Strategy, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” would mean that Strategy had the lowest effective fee rate in the Lipper peer group. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 59 |
Lipper also compared the Strategy’s total expense ratio to the medians of the Strategy’s EG and Lipper Expense Universe (“EU”). The EU10 is a broader group compared to the EG, consisting of all funds that have the same investment classification/objective and load type as the subject Strategy.
Strategy | Expense Ratio (%)11 | Lipper Exp. Group Median (%) | Lipper Group Rank | Lipper Exp. Universe Median (%) | Lipper Universe Rank | |||||||||||||||
Municipal Bond Inflation Strategy | 0.800 | 0.884 | 2/10 | 0.770 | 22/37 |
Based on this analysis, the Strategy has a more favorable ranking on a total expense ratio basis than on a management fee basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE ADVISORY FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Strategy. The Senior Officer has retained an independent consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The profitability information for the Strategy, prepared by the Adviser for the Board of Directors, was reviewed by the Senior Officer and the independent consultant. The Adviser’s profitability from providing investment advisory services to the Strategy in 2011 was negative.
In addition to the Adviser’s direct profits from managing the Strategy, certain of the Adviser’s affiliates have business relationships with the Strategy and may earn a profit from providing other services to the Strategy. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that such benefits should be factored into the evaluation of the total relationship between the Strategy and the Adviser. Neither case law nor common business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are
10 | Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. |
11 | Most recently completed fiscal year Class A share total expense ratio. |
60 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
competitive. These affiliates provide transfer agent and distribution related services to the Strategy and receive transfer agent fees, front-end sales loads, Rule 12b-1 payments and contingent deferred sales charges (“CDSC”). During the Strategy’s most recently completed fiscal year, ABI received from the Portfolio $0, $347,324 and $19,284 in front-end sales charges, Rule 12b-1 and CDSC fees, respectively.
AllianceBernstein Investments, Inc. (“ABI”), an affiliate of the Adviser, is the Strategy’s principal underwriter. ABI and the Adviser have disclosed in the Strategy’s prospectus that they may make revenue sharing payments from their own resources, in addition to revenues derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Strategy. In 2011, ABI paid approximately 0.04% of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $17 million for distribution services and educational support (revenue sharing payments).
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”), the affiliated transfer agent for the Strategy, are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis. During the Strategy’s most recently completed fiscal year, ABIS received $18,000 in fees from the Strategy.
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through pricing to scale, breakpoints, fee reductions/waivers and enhancement to services.
An independent consultant, retained by the Senior Officer, provided the Board of Directors information on the Adviser’s firm-wide average costs from 2005 through 2011 and the potential economies of scale. The independent consultant noted that from 2005 through 2007 the Adviser experienced significant growth in assets under management (“AUM”). During this period, operating expenses increased, in part to keep up with growth, and in part reflecting market returns. However, from 2008 through the first quarter of 2009, AUM rapidly and significantly decreased due to declines in market value and client withdrawals. When AUM rapidly decreased, some operating expenses categories, including base compensation and office space, adjusted more slowly during this period, resulting in an increase in average costs. Since 2009, AUM has experienced less significant changes. The independent consultant noted that changes in operating expenses reflect changes in business composition and business practices in response to changes in financial markets. Finally, the independent consultant concluded that the increase in average cost and the decline in net operating margin across the Adviser since late 2008 are inconsistent with the
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 61 |
view that there are currently reductions in average costs due to economies of scale that can be shared with the AllianceBernstein Mutual Funds managed by the Adviser through lower fees.
Previously in February 2008, the independent consultant provided the Board of Directors an update of the Deli12 study on advisory fees and various fund characteristics.13 The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.14 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund AUM, family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of the fund size and each Adviser’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES INCLUDING THE PERFORMANCE OF THE PORTFOLIO. |
With assets under management of approximately $419 billion as of September 30, 2012, the Adviser has the investment experience to manage and provide non-investment services (described in Section I) to the Strategy.
12 | The Deli study, originally published in 2002 based on 1997 data and updated for the February 2008 Presentation, may be of diminished value due to the age of the data used in the presentation and the changes experienced in the industry over the last four years. |
13 | As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since the fees may not be the product of negotiations conducted at arm’s length. See Jones V. Harris at 1429. |
14 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
62 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
The information below shows the 1 year performance return and rankings of the Strategy 15 relative to its Lipper Performance Group (“PG”) and Lipper Performance Universe (“PU”)16 for the periods ended July 31, 2012.17
Strategy | Strategy Return (%) | PG Median (%) | PU Median (%) | PG Rank | PU Rank | |||||||||||||||
Municipal Bond Inflation Strategy 1 year | 4.75 | 7.66 | 8.09 | 10/10 | 44/46 |
Set forth below are the 1 year and since inception net performance returns of the Strategy (in bold)18 versus its benchmark.19 Strategy and benchmark volatility and reward-to-variability ratio (“Sharpe Ratio”) information is also shown.20
Periods Ending July 31, 2012 Annualized Performance | ||||||||||||||||||||
Annualized | Risk Period (Year) | |||||||||||||||||||
1 Year (%) | Since Inception | Volatility (%) | Sharpe (%) | |||||||||||||||||
Municipal Bond Inflation Strategy | 4.75 | 4.25 | 2.78 | 1.58 | 1 | |||||||||||||||
Barclays Capital 1-10yr TIPS Index | 4.84 | 6.58 | 2.71 | 1.65 | 1 | |||||||||||||||
Inception Date: January 26, 2010 |
15 | The performance returns and rankings are for the Class A shares of the Strategy. The performance returns of the Strategy were provided Lipper. |
16 | The Strategy’s PG is identical to the Strategy’s EG. The Strategy’s PU is not identical to the Strategy’s EU as the criteria for including/excluding a Strategy in/from a PU are somewhat different from that of an EU. |
17 | The current Lipper investment classification/objective dictates the PG and PU throughout the life of the Strategy even if the Strategy may have had a different investment classification/objective at different points in time. |
18 | The performance returns and risk measures shown in the table are for the Class A shares of the Strategy. |
19 | The Adviser provided Strategy and benchmark performance return information for the periods through July 31, 2012. |
20 | Strategy and benchmark volatility and Sharpe Ratio information was obtained through Lipper LANA, a database maintained by Lipper. Volatility is a statistical measure of the tendency of a market price or yield to vary over time. A Sharpe Ratio is a risk adjusted measure of return that divides a fund’s return in excess of the riskless return by the fund’s standard deviation. A strategy with a greater volatility would be viewed as more risky than a strategy with equivalent performance but lower volatility; for that reason, a greater return would be demanded for the more risky fund. A strategy with a higher Sharpe Ratio would be viewed as better performing than a strategy with a lower Sharpe Ratio. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 63 |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Strategy is reasonable and within the range of what would have been negotiated at arm’s-length in light of all the surrounding circumstances. This conclusion in respect of the Strategy is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: December 3, 2012
64 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies
Balanced Wealth Strategy
Conservative Wealth Strategy
Wealth Appreciation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Conservative Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Asset Allocation/Multi-Asset Funds
Dynamic All Market Fund
Emerging Markets Multi-Asset Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Discovery Growth Fund**
Growth Fund
Large Cap Growth Fund
Select US Equity Portfolio
Small Cap Growth Portfolio
U.S. Strategic Research Portfolio
Global & International
Global Thematic Growth Fund
International Discovery Equity Portfolio
International Focus 40 Portfolio
International Growth Fund
Value Funds
Domestic
Core Opportunities Fund
Discovery Value Fund**
Equity Income Fund
Growth & Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Portfolio California Portfolio High Income Portfolio Massachusetts Portfolio Michigan Portfolio Minnesota Portfolio Municipal Bond Inflation Strategy | National Portfolio New Jersey Portfolio New York Portfolio Ohio Portfolio Pennsylvania Portfolio Virginia Portfolio |
Intermediate Municipal Bond Funds
Intermediate California Portfolio
Intermediate Diversified Portfolio
Intermediate New York Portfolio
Closed-End Funds
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alternatives
Global Risk Allocation Fund**
Market Neutral Strategy-Global
Market Neutral Strategy-U.S.
Real Asset Strategy
Unconstrained Bond Fund
Retirement Strategies
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,* which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
* | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
** | Prior to October 8, 2012, Global Risk Allocation Fund was named Balanced Shares. Prior to November 1, 2012, Discovery Growth Fund was named Small/Mid Cap Growth Fund and Discovery Value Fund was named Small/Mid Cap Value Fund. |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 65 |
AllianceBernstein Family of Funds
NOTES
66 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
NOTES
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY • | 67 |
NOTES
68 | • ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY |
ALLIANCEBERNSTEIN MUNICIPAL BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
MBIS-0151-1012 | ![]() |
ANNUAL REPORT
AllianceBernstein
Real Asset Strategy
October 31, 2012
Annual Report
Investment Products Offered
•Are Not FDIC Insured •May Lose Value •Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AllianceBernstein’s website at www.alliancebernstein.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AllianceBernstein at (800) 227-4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AllianceBernstein publishes full portfolio holdings for the Fund monthly at www.alliancebernstein.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.
AllianceBernstein® and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.
December 24, 2012
Annual Report
This report provides management’s discussion of fund performance for AllianceBernstein Real Asset Strategy (the “Strategy”) for the annual reporting period ended October 31, 2012.
Investment Objective and Policies
The Strategy’s investment objective is to maximize real return. Real return is the rate of return after adjusting for inflation.
The Strategy pursues an aggressive investment strategy involving a variety of asset classes. The Strategy invests primarily in instruments that AllianceBernstein L.P. (the “Adviser”) expects to outperform broad equity indices during periods of rising inflation. Under normal circumstances, the Strategy expects to invest its assets principally in the following instruments that, in the judgment of the Adviser, are affected directly or indirectly by the level and change in the rate of inflation: inflation-protected fixed-income securities, such as Treasury Inflation-Protected Securities (“TIPS”) and similar bonds issued by governments outside of the U.S., commodities, equity securities, such as commodity-related stocks, real estate securities, utility securities, infrastructure-related securities, securities and derivatives linked to the price of other assets (such as commodities, stock indices and real estate) and currencies. The Strategy expects its investments in fixed-income securities to have a broad range of maturities and quality levels.
The Strategy will seek inflation protection from investments around
the globe, both in developed and emerging market countries. In selecting securities for purchase and sale, the Adviser will utilize its qualitative and quantitative resources to determine overall inflation sensitivity, asset allocation, and security selection. When its analysis indicates that changes are necessary, the Adviser intends to implement them through a combination of changes to underlying positions and the use of inflation swaps and other types of derivatives, such as interest rate swaps. The Strategy anticipates that its investments, other than its investments in inflation-protected securities, will focus roughly equally on commodity-related equity securities, commodities and commodity derivatives, and real estate equity securities to provide a balance between expected return and inflation protection. Its commodities investments will include significant exposure to energy commodities, but will also include agricultural products, industrial and precious metals, such as gold. The Strategy’s investments in real estate equity securities will include real estate investment trusts (“REITs”), other real estate-related securities, and infrastructure-related securities.
The Strategy will invest in both U.S. and non-U.S. dollar-denominated equity or fixed-income securities. The Strategy may invest in currencies for hedging or for investment purposes, both in the spot market and through long or short positions in currency-related derivatives. The Strategy does not ordinarily expect to hedge its foreign currency exposure because it will be balanced by investments in U.S. dollar-denominated securities
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 1 |
although it may hedge the exposure under certain circumstances. The Strategy may invest significantly, to the extent permitted by applicable law, in derivatives such as options, futures, forwards, swaps or structured notes. The Strategy intends to use leverage for investment purposes through the use of cash made available by derivatives transactions to make other investments in accordance with its investment policies. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
The Strategy may seek to gain exposure to physical commodities traded in the commodities markets through investments in a variety of derivative instruments, including investments in commodity index-linked notes. The Adviser expects that the Strategy will seek to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Strategy organized under the laws of the Cayman Islands (the “Subsidiary”). The Subsidiary is advised by the Adviser and has the same investment objective
and substantially similar investment policies and restrictions as the Strategy except that the Subsidiary, unlike the Strategy, may invest, without limitation, in commodities and commodities-related instruments. The Strategy will be subject to the risks associated with the commodities, derivatives and other instruments in which the Subsidiary invests, to the extent of its investment in the Subsidiary. The Strategy limits its investment in the Subsidiary to no more than 25% of its net assets. The Strategy is “non-diversified”, which means that it may concentrate its assets in a smaller number of issuers than a diversified fund.
Investment Results
The table on page 7 shows the Strategy’s performance compared to its benchmark, the Morgan Stanley Capital International (“MSCI”) All Country (“AC”) World Commodity Producers Index (net), for the six- and 12-month periods ended October 31, 2012.
During both periods, the Strategy registered positive absolute returns and outperformed its benchmark, before sales charges. For the 12-month period, relative performance was driven primarily by the Strategy’s strategic allocation to real estate equities, partially offset by the strategic allocation to commodity futures. Active management within both the natural resource equities and commodity futures allocations contributed positively to performance. Within the commodity futures allocation, value was added by futures curve positioning and security selection. Security and sector selection within
2 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
real estate also contributed to performance. The Strategy’s top-down active decisions, including asset allocation and risk management, detracted overall from relative performance. The Strategy’s currency management strategies, including forwards for hedging and investment purposes, had an immaterial impact on performance during the 12-month period. Total return swaps were used for hedging and investment purposes, which detracted from performance. Options were used for hedging and investment purposes, which added to performance.
For the six-month period, outperformance was driven primarily by the Strategy’s strategic exposures to real estate equities and the commodity futures asset class, both of which contributed positively to relative performance (exposure to commodity futures was obtained via commodity index swaps, commodity futures and options on commodity futures). Within the Strategy’s natural resources equities allocation, active management contributed positively to performance. The Strategy also benefited from active security and sector selection decisions within the commodity futures allocation, while active decisions within the real estate allocation detracted from performance. Positive contributions from top-down collateral management were offset by asset allocation and risk management decisions, resulting in an immaterial impact on relative performance from top-down active management over the period; the Strategy’s currency management strategies, including forwards for hedging and investment purposes, detracted
from performance. Total return swaps were used for hedging and investment purposes, which contributed to performance. Options, used for hedging and investment purposes, had an immaterial impact on performance.
During both periods, interest rate swaps and inflation-linked derivatives were utilized for investment purposes, which had an immaterial impact on performance.
Market Review and Investment Strategy
Volatility continued throughout the annual period, as global markets remained highly correlated with ongoing European debt sentiment and perceptions of the overall health of the global economy. Investor confidence improved dramatically from late 2011 through the first quarter of 2012, after the European Central Bank (“ECB”) took decisive moves to stem the euro area crisis. The ECB’s Long-Term Refinancing Operation provided liquidity to regional banks early in the period, reducing the risk of a banking crisis. Additionally, signs of improving economic momentum in the first quarter, particularly in the U.S., also buoyed investor sentiment. Stocks rose across the globe and corporate debt outperformed governments early in the period. During this time, the Real Asset Strategy Team (the “Team”) targeted a roughly neutral risk profile, with a small overweight in natural resource equities balanced by modest underweights in both real estate and commodity futures.
In the second quarter of 2012, the pendulum swung back to “risk off” as
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 3 |
the European debt crisis intensified, growth in China moderated and the pace of U.S. economic growth showed signs of slowing. Government yields fell dramatically, with U.S. treasury and German bund yields setting new record lows. Investors were troubled by three main developments: first, euro area economic data deteriorated as severe fiscal austerity in many member nations stifled growth; second, the slowdown in Europe started to hurt emerging market economies such as China and Brazil by reducing demand for their exports; and third, the U.S. economy, too, displayed signs of weakness, with public sector cuts weighing on growth and softer global demand dampening exports. Additionally, investors began to worry about U.S. fiscal issues, spending cuts and tax hikes, especially since many tax laws are set to expire at the end of the year (the “fiscal cliff”). As valuation gaps widened through the second quarter, the Team increased its overweight to natural resource equities and its underweight to real estate, while maintaining the Strategy’s neutral risk profile.
Risk aversion in the second quarter of 2012 was short-lived again, as financial markets swung back to “risk on” during the summer months. Investor sentiment was boosted by speculation that the ECB would embark on an ambitious bond-buying program to help underpin the finances of European governments in the peripheral countries. Equity markets around the globe moved higher in reaction to central banks’ moves to boost liquidity. Beginning with the run-up to the U.S. Federal Reserve’s announcement in September of renewed quantitative easing and continuing through the end of the 12-month period, the Team modestly reduced portfolio risk in response to market strength, though with an expectation of taking risk back toward neutral levels should signals of investor complacency normalize. The Team continues to maintain a bias toward further increasing exposure to natural resource equities and decreasing the Strategy’s allocation to real estate, due primarily to valuation considerations.
4 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
DISCLOSURES AND RISKS
Benchmark Disclosure
The unmanaged MSCI AC World Commodity Producers Index (net) does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI AC World Commodity Producers Index is a free float-adjusted, market capitalization index designed to track the performance of global listed commodity producers, including emerging markets. Net returns include the reinvestment of dividends after deduction of non-U.S. withholding tax. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
Market Risk: The value of the Strategy’s assets will fluctuate as the stock, commodity and bond markets fluctuate. The value of the Strategy’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Commodity Risk: Investing in commodities and commodity-linked derivative instruments, either directly or through the Subsidiary, may subject the Strategy to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Derivatives Risk: Investments in derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: To the extent the Strategy uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Strategy’s investments.
Liquidity Risk: Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Strategy from selling out of these illiquid securities at an advantageous price. The Strategy invests in derivatives and securities involving substantial market and credit risk, which tend to involve greater liquidity risk.
Foreign (Non-U.S.) Risk: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
(Disclosures, Risks and Note about Historical Performance continued on next page)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 5 |
Disclosures and Risks
DISCLOSURES AND RISKS
(continued from previous page)
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Strategy’s investments or reduce its returns.
Subsidiary Risk: By investing in the Subsidiary, the Strategy is indirectly exposed to the risks associated with the Subsidiary’s investments. The derivatives and other investments held by the Subsidiary are generally similar to those that are permitted to be held by the Strategy and are subject to the same risks that apply to similar investments if held directly by the Strategy. The Subsidiary is not registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and, unless otherwise noted in the Prospectus, is not subject to all of the investor protections of the 1940 Act. However, the Strategy wholly owns and controls the Subsidiary, and the Strategy and the Subsidiary are managed by the Adviser, making it unlikely the Subsidiary will take actions contrary to the interests of the Strategy or its shareholders.
Real Estate Risk: The Strategy’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Diversification Risk: The Strategy may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Strategy’s NAV.
Management Risk: The Strategy is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Strategy’s prospectus.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Strategy will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.alliancebernstein.com.
Investors should consider the investment objectives, risks, charges and expenses of the Strategy carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com. For Class 1 shares, Click on “Private Clients”, then “Investments”, then “Stocks” or “Bonds”, then “Prospectuses, SAIs, and Shareholder Reports”. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
6 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Disclosures and Risks
HISTORICAL PERFORMANCE
THE STRATEGY VS. ITS BENCHMARK PERIODS ENDED OCTOBER 31, 2012 | NAV Returns | |||||||||
6 Months | 12 Months | |||||||||
AllianceBernstein Real Asset Strategy | ||||||||||
Class 1* | 1.17% | 3.47% | ||||||||
| ||||||||||
Class 2* | 1.32% | 3.70% | ||||||||
| ||||||||||
Class A | 1.16% | 3.36% | ||||||||
| ||||||||||
Class C | 0.72% | 2.58% | ||||||||
| ||||||||||
Advisor Class** | 1.25% | 3.69% | ||||||||
| ||||||||||
Class R ** | 1.07% | 3.20% | ||||||||
| ||||||||||
Class K** | 1.16% | 3.43% | ||||||||
| ||||||||||
Class I** | 1.34% | 3.69% | ||||||||
| ||||||||||
MSCI AC World Commodity Producers Index (net) | -2.34% | -3.42% | ||||||||
| ||||||||||
* Class 1 shares are only available to private clients of Sanford C. Bernstein & Co., LLC. Class 2 shares are only available to the Adviser’s institutional clients or through other limited arrangements.
** Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy.
| ||||||||||
See Disclosures, Risk and Note about Historical Performance on pages 5-6.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 7 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
GROWTH OF A $10,000 INVESTMENT IN THE STRATEGY
3/8/10* TO 10/31/12
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Real Asset Strategy’s Class A shares (from 3/8/10* to 10/31/12) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Strategy and assumes the reinvestment of dividends and capital gains distributions.
* | Inception date: 3/8/2010. |
See Disclosures, Risks and Note about Historical Performance on pages 5-6.
(Historical Performance continued on next page)
8 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2012 | ||||||||
NAV Returns | SEC Returns | |||||||
Class 1 Shares† | ||||||||
1 Year | 3.47 | % | 3.47 | % | ||||
Since Inception* | 6.40 | % | 6.40 | % | ||||
Class 2 Shares† | ||||||||
1 Year | 3.70 | % | 3.70 | % | ||||
Since Inception* | 6.66 | % | 6.66 | % | ||||
Class A Shares | ||||||||
1 Year | 3.36 | % | -1.03 | % | ||||
Since Inception* | 6.38 | % | 4.67 | % | ||||
Class C Shares | ||||||||
1 Year | 2.58 | % | 1.58 | % | ||||
Since Inception* | 5.58 | % | 5.58 | % | ||||
Advisor Class Shares** | ||||||||
1 Year | 3.69 | % | 3.69 | % | ||||
Since Inception* | 6.64 | % | 6.64 | % | ||||
Class R Shares** | ||||||||
1 Year | 3.20 | % | 3.20 | % | ||||
Since Inception* | 6.13 | % | 6.13 | % | ||||
Class K Shares** | ||||||||
1 Year | 3.43 | % | 3.43 | % | ||||
Since Inception* | 6.41 | % | 6.41 | % | ||||
Class I Shares** | ||||||||
1 Year | 3.69 | % | 3.69 | % | ||||
Since Inception* | 6.67 | % | 6.67 | % |
The Strategy’s prospectus fee table shows the Strategy’s total annual operating expense ratios as 1.47%, 3.72%, 1.61%, 2.31%, 1.29%, 2.87%, 1.91% and 1.38% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expense ratios (exclusive of interest expense) to 1.00%, 0.75%, 1.05%, 1.75%, 0.75%, 1.25%, 1.00% and 0.75% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. These waivers/reimbursements extend through January 31, 2013 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
† | Class 1 shares are only available to private clients of Sanford C. Bernstein & Co., LLC. Class 2 shares are only available to the Adviser’s institutional clients or through other limited arrangements. These share classes do not carry front end sales charges; therefore their respective NAV and SEC returns are the same. |
* | Inception date: 3/8/10. |
** | These share classes are offered at NAV to eligible investors and their SEC returns are the same as the NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
See Disclosures, Risks and Historical Performance on pages 5-6.
(Historical Performance continued on next page)
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 9 |
Historical Performance
HISTORICAL PERFORMANCE
(continued from previous page)
SEC AVERAGE ANNUAL RETURNS (WITH ANY APPLICABLE SALES CHARGES) AS OF THE MOST RECENT CALENDAR QUARTER-END (SEPTEMBER 30, 2012) | ||||||
SEC Returns | ||||||
Class 1 Shares† | ||||||
1 Year | 15.84 | % | ||||
Since Inception* | 7.02 | % | ||||
Class 2 Shares† | ||||||
1 Year | 16.13 | % | ||||
Since Inception* | 7.28 | % | ||||
Class A Shares | ||||||
1 Year | 10.89 | % | ||||
Since Inception* | 5.22 | % | ||||
Class C Shares | ||||||
1 Year | 13.93 | % | ||||
Since Inception* | 6.22 | % | ||||
Advisor Class Shares** | ||||||
1 Year | 16.00 | % | ||||
Since Inception* | 7.27 | % | ||||
Class R Shares** | ||||||
1 Year | 15.52 | % | ||||
Since Inception* | 6.74 | % | ||||
Class K Shares** | ||||||
1 Year | 15.86 | % | ||||
Since Inception* | 7.03 | % | ||||
Class I Shares** | ||||||
1 Year | 16.13 | % | ||||
Since Inception* | 7.30 | % |
† | Class 1 shares are only available to private clients of Sanford C. Bernstein & Co., LLC. Class 2 shares are only available to the Adviser’s institutional clients or through other limited arrangements. |
* | Inception date: 3/8/10. |
** | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
See Disclosures, Risks and Historical Performance on pages 5-6.
10 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Historical Performance
FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2012 | Ending Account Value October 31, 2012 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,011.60 | $ | 5.31 | 1.05 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.86 | $ | 5.33 | 1.05 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,007.20 | $ | 8.83 | 1.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,016.34 | $ | 8.87 | 1.75 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,012.50 | $ | 3.79 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.37 | $ | 3.81 | 0.75 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,010.70 | $ | 6.32 | 1.25 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.85 | $ | 6.34 | 1.25 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,011.60 | $ | 5.06 | 1.00 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,013.40 | $ | 3.80 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.37 | $ | 3.81 | 0.75 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,011.70 | $ | 5.06 | 1.00 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,013.20 | $ | 3.80 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.37 | $ | 3.81 | 0.75 | % |
* | Expenses are equal to the Strategy’s annualized expense ratios multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
** | Assumes 5% return before expenses. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 11 |
Fund Expenses
PORTFOLIO SUMMARY
October 31, 2012 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $398.6
TEN LARGEST EQUITY HOLDINGS**
October 31, 2012 (unaudited)
Company | U.S. $ Value | Percent of Net Assets | ||||||
Exxon Mobil Corp. | $ | 16,321,618 | 4.1 | % | ||||
Royal Dutch Shell PLC | 9,591,322 | 2.4 | ||||||
Chevron Corp. | 7,038,010 | 1.8 | ||||||
BP PLC | 6,827,150 | 1.7 | ||||||
BHP Billiton Ltd. | 4,706,087 | 1.2 | ||||||
Rio Tinto PLC | 4,227,811 | 1.0 | ||||||
Petroleo Brasileiro SA | 3,940,542 | 1.0 | ||||||
Vale SA | 3,710,957 | 0.9 | ||||||
Simon Property Group, Inc. | 3,563,388 | 0.9 | ||||||
Suncor Energy, Inc. | 3,224,968 | 0.8 | ||||||
$ | 63,151,853 | 15.8 | % |
* | All data are as of October 31, 2012. The Strategy breakdown is expressed as an approximate percentage of the Strategy’s net assets inclusive of derivative exposure, based on the Adviser’s internal classification guidelines. |
** | Long-term investments. |
12 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Portfolio Summary
CONSOLIDATED PORTFOLIO OF INVESTMENTS
October 31, 2012
Company | Shares | U.S. $ Value | ||||||
| ||||||||
COMMON STOCKS – 62.3% | ||||||||
Energy – 24.1% | ||||||||
Coal & Consumable Fuels – 0.9% | ||||||||
Adaro Energy Tbk PT | 741,200 | $ | 105,118 | |||||
Banpu PCL | 52,450 | 684,502 | ||||||
Cameco Corp. | 33,500 | 649,707 | ||||||
China Shenhua Energy Co., Ltd. – Class H | 62,300 | 263,977 | ||||||
Consol Energy, Inc. | 4,200 | 147,672 | ||||||
Exxaro Resources Ltd. | 66,890 | 1,337,552 | ||||||
Indo Tambangraya Megah Tbk PT | 26,700 | 112,434 | ||||||
Peabody Energy Corp. | 5,000 | 139,500 | ||||||
|
| |||||||
3,440,462 | ||||||||
|
| |||||||
Integrated Oil & Gas – 16.9% | ||||||||
BG Group PLC | 155,750 | 2,891,792 | ||||||
BP PLC | 955,970 | 6,827,150 | ||||||
Cenovus Energy, Inc. | 13,800 | 486,782 | ||||||
Chevron Corp. | 63,860 | 7,038,010 | ||||||
China Petroleum & Chemical | 1,901,500 | 2,006,382 | ||||||
Eni SpA | 131,690 | 3,030,306 | ||||||
Exxon Mobil Corp. | 179,024 | 16,321,618 | ||||||
Galp Energia SGPS SA | 13,040 | 208,743 | ||||||
Gazprom OAO (Sponsored ADR) | 316,200 | 2,890,068 | ||||||
Hess Corp. | 21,040 | 1,099,550 | ||||||
Husky Energy, Inc. | 10,600 | 287,089 | ||||||
Imperial Oil Ltd. | 6,100 | 269,896 | ||||||
LUKOIL OAO (London) (Sponsored ADR) | 9,300 | 559,860 | ||||||
Murphy Oil Corp. | 5,239 | 314,340 | ||||||
OMV AG | 8,300 | 303,741 | ||||||
Origin Energy Ltd. | 23,000 | 270,736 | ||||||
PetroChina Co., Ltd. – Class H | 386,600 | 523,593 | ||||||
Petroleo Brasileiro SA | 54,500 | 576,918 | ||||||
Petroleo Brasileiro SA (ADR) | 83,310 | 1,767,005 | ||||||
Petroleo Brasileiro SA (Preference Shares) | 77,000 | 788,558 | ||||||
Petroleo Brasileiro SA (Sponsored ADR) | 39,360 | 808,061 | ||||||
PTT PCL | 70,300 | 729,377 | ||||||
Repsol SA | 15,600 | 312,636 | ||||||
Rosneft OAO (GDR)(a)(b) | 3,430 | 25,382 | ||||||
Royal Dutch Shell PLC (Euronext | 121,116 | 4,152,010 | ||||||
Royal Dutch Shell PLC – Class A | 67,268 | 2,308,147 | ||||||
Royal Dutch Shell PLC – Class B | 88,520 | 3,131,165 | ||||||
Sasol Ltd. | 10,000 | 426,001 | ||||||
Statoil ASA | 43,360 | 1,067,911 | ||||||
Suncor Energy, Inc. (Toronto) | 96,090 | 3,224,968 | ||||||
Total SA | 58,150 | 2,929,028 | ||||||
|
| |||||||
67,576,823 | ||||||||
|
|
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 13 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Oil & Gas Drilling – 0.6% | ||||||||
Ensco PLC | 10,300 | $ | 595,546 | |||||
Seadrill Ltd. | 27,860 | 1,123,873 | ||||||
Transocean Ltd. | 19,660 | 898,265 | ||||||
|
| |||||||
2,617,684 | ||||||||
|
| |||||||
Oil & Gas Equipment & Services – 0.5% | ||||||||
Halliburton Co. | 23,210 | 749,451 | ||||||
Schlumberger Ltd. | 15,670 | 1,089,535 | ||||||
|
| |||||||
1,838,986 | ||||||||
|
| |||||||
Oil & Gas Exploration & Production – 5.2% |
| |||||||
Anadarko Petroleum Corp. | 28,290 | 1,946,635 | ||||||
Apache Corp. | 7,000 | 579,250 | ||||||
ARC Resources Ltd. | 5,300 | 128,686 | ||||||
Athabasca Oil Corp.(b) | 8,300 | 100,473 | ||||||
Cabot Oil & Gas Corp. | 12,530 | 588,659 | ||||||
Canadian Natural Resources Ltd. | 20,100 | 605,767 | ||||||
Canadian Oil Sands Ltd. | 8,900 | 188,916 | ||||||
Chesapeake Energy Corp. | 12,100 | 245,146 | ||||||
Cimarex Energy Co. | 1,800 | 102,924 | ||||||
CNOOC Ltd. | 374,200 | 769,138 | ||||||
Cobalt International Energy, Inc.(b) | 4,700 | 97,807 | ||||||
Concho Resources, Inc.(b) | 1,800 | 155,016 | ||||||
ConocoPhillips | 22,300 | 1,290,055 | ||||||
Continental Resources, Inc./OK(b) | 1,400 | 100,604 | ||||||
Crescent Point Energy Corp. | 5,300 | 220,225 | ||||||
Denbury Resources, Inc.(b) | 7,200 | 110,376 | ||||||
Devon Energy Corp. | 20,280 | 1,180,498 | ||||||
EnCana Corp. | 13,500 | 304,130 | ||||||
EOG Resources, Inc. | 15,510 | 1,806,760 | ||||||
EQT Corp. | 2,700 | 163,701 | ||||||
Inpex Corp. | 40 | 227,875 | ||||||
Kunlun Energy Co., Ltd. | 61,000 | 112,916 | ||||||
Lundin Petroleum AB(b) | 31,080 | 745,733 | ||||||
Marathon Oil Corp. | 40,960 | 1,231,258 | ||||||
MEG Energy Corp.(b) | 2,700 | 98,619 | ||||||
Nexen, Inc. (Toronto) | 12,274 | 293,101 | ||||||
Noble Energy, Inc. | 9,970 | 947,250 | ||||||
NovaTek OAO (Sponsored GDR)(a) | 1,700 | 193,800 | ||||||
Occidental Petroleum Corp. | 37,110 | 2,930,206 | ||||||
OGX Petroleo e Gas Participacoes SA(b) | 35,700 | 82,788 | ||||||
Pacific Rubiales Energy Corp. | 5,400 | 127,005 | ||||||
Penn West Petroleum Ltd. | 8,700 | 112,980 | ||||||
Pioneer Natural Resources Co. | 2,100 | 221,865 | ||||||
Plains Exploration & Production Co.(b) | 2,700 | 96,282 | ||||||
Progress Energy Resources Corp. | 4,700 | 94,682 | ||||||
PTT Exploration & Production PCL | 21,200 | 114,819 | ||||||
QEP Resources, Inc. | 3,700 | 107,300 | ||||||
Range Resources Corp. | 3,000 | 196,080 |
14 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Santos Ltd. | 17,300 | $ | 206,271 | |||||
Southwestern Energy Co.(b) | 6,400 | 222,080 | ||||||
Talisman Energy, Inc. | 18,900 | 214,216 | ||||||
Tatneft OAO (Sponsored ADR) | 4,090 | 158,447 | ||||||
Tourmaline Oil Corp.(b) | 3,800 | 125,557 | ||||||
Tullow Oil PLC | 16,600 | 377,131 | ||||||
Vermilion Energy, Inc. | 2,300 | 109,963 | ||||||
Whiting Petroleum Corp.(b) | 2,400 | 100,848 | ||||||
Woodside Petroleum Ltd. | 11,800 | 420,743 | ||||||
|
| |||||||
20,554,581 | ||||||||
|
| |||||||
96,028,536 | ||||||||
|
| |||||||
Materials – 13.0% | ||||||||
Aluminum – 0.1% | ||||||||
Alcoa, Inc. | 31,510 | 270,040 | ||||||
Norsk Hydro ASA | 33,540 | 150,998 | ||||||
|
| |||||||
421,038 | ||||||||
|
| |||||||
Diversified Chemicals – 0.2% | ||||||||
BASF SE | 12,100 | 1,003,699 | ||||||
|
| |||||||
Diversified Metals & Mining – 5.4% | ||||||||
Anglo American PLC | 103,880 | 3,200,981 | ||||||
Antofagasta PLC | 9,300 | 189,200 | ||||||
BHP Billiton Ltd. | 132,920 | 4,706,087 | ||||||
BHP Billiton PLC | 72,180 | 2,313,456 | ||||||
Eurasian Natural Resources Corp. PLC | 33,200 | 175,996 | ||||||
First Quantum Minerals Ltd. | 10,500 | 236,020 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 30,870 | 1,200,226 | ||||||
Glencore International PLC | 77,900 | 432,286 | ||||||
Grupo Mexico SAB de CV | 84,000 | 269,436 | ||||||
Korea Zinc Co., Ltd. | 400 | 163,857 | ||||||
Minera Frisco SAB de CV(b) | 43,800 | 173,273 | ||||||
MMC Norilsk Nickel OJSC (ADR) | 9,920 | 152,173 | ||||||
Rio Tinto Ltd. | 21,350 | 1,258,703 | ||||||
Rio Tinto PLC | 84,630 | 4,227,811 | ||||||
Southern Copper Corp. | 5,000 | 190,500 | ||||||
Sumitomo Metal Mining Co., Ltd. | 15,000 | 197,547 | ||||||
Teck Resources Ltd. | 52,340 | 1,661,255 | ||||||
Turquoise Hill Resources Ltd.(b) | 20,200 | 157,959 | ||||||
Xstrata PLC | 45,600 | 722,366 | ||||||
|
| |||||||
21,629,132 | ||||||||
|
| |||||||
Fertilizers & Agricultural | ||||||||
Agrium, Inc. | 9,712 | 1,022,787 | ||||||
CF Industries Holdings, Inc. | 900 | 184,671 | ||||||
Incitec Pivot Ltd. | 45,800 | 150,008 | ||||||
Israel Chemicals Ltd. | 13,000 | 162,638 | ||||||
Israel Corp. Ltd. (The) | 300 | 203,871 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 15 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
K&S AG | 7,750 | $ | 367,308 | |||||
Monsanto Co. | 24,730 | 2,128,511 | ||||||
Mosaic Co. (The) | 4,000 | 209,360 | ||||||
Potash Corp. of Saskatchewan, Inc. | 11,700 | 470,343 | ||||||
Syngenta AG | 1,300 | 506,856 | ||||||
Uralkali OJSC (Sponsored GDR)(a) | 3,670 | 143,791 | ||||||
Yara International ASA | 2,900 | 136,674 | ||||||
|
| |||||||
5,686,818 | ||||||||
|
| |||||||
Gold – 2.6% | ||||||||
Agnico-Eagle Mines Ltd. | 3,800 | 214,550 | ||||||
Anglogold Ashanti Ltd. | 8,400 | 283,797 | ||||||
Barrick Gold Corp. | 22,000 | 889,692 | ||||||
Eldorado Gold Corp. | 14,800 | 218,721 | ||||||
Franco-Nevada Corp. | 3,100 | 178,504 | ||||||
Gold Fields Ltd. | 15,900 | 197,542 | ||||||
Goldcorp, Inc. | 61,480 | 2,779,297 | ||||||
Kinross Gold Corp. | 143,610 | 1,426,394 | ||||||
Koza Altin Isletmeleri AS | 26,330 | 573,700 | ||||||
New Gold, Inc.(b) | 79,030 | 925,017 | ||||||
Newcrest Mining Ltd. | 16,800 | 463,343 | ||||||
Newmont Mining Corp. | 10,900 | 594,595 | ||||||
Randgold Resources Ltd. | 1,900 | 227,121 | ||||||
Real Gold Mining Ltd.(c)(d) | 124,500 | 22,490 | ||||||
Yamana Gold, Inc. | 58,840 | 1,188,288 | ||||||
|
| |||||||
10,183,051 | ||||||||
|
| |||||||
Paper Products – 0.3% | ||||||||
Fibria Celulose SA (ADR)(b) | 14,000 | 118,835 | ||||||
International Paper Co. | 5,600 | 200,648 | ||||||
MeadWestvaco Corp. | 3,700 | 109,853 | ||||||
Mondi PLC | 67,260 | 741,435 | ||||||
Stora Enso Oyj | 17,500 | 110,698 | ||||||
UPM-Kymmene Oyj | 9,600 | 103,073 | ||||||
|
| |||||||
1,384,542 | ||||||||
|
| |||||||
Precious Metals & Minerals – 0.4% | ||||||||
Anglo American Platinum Ltd. | 2,400 | 111,575 | ||||||
Fresnillo PLC | 4,900 | 152,121 | ||||||
Impala Platinum Holdings Ltd. | 11,800 | 212,747 | ||||||
Industrias Penoles SAB de CV | 3,100 | 155,071 | ||||||
North American Palladium Ltd.(b) | 225,590 | 354,176 | ||||||
Silver Wheaton Corp. | 7,800 | 314,343 | ||||||
Umicore SA | 2,500 | 128,471 | ||||||
|
| |||||||
1,428,504 | ||||||||
|
| |||||||
Specialty Chemicals – 0.3% | ||||||||
Koninklijke DSM NV | 19,748 | 1,015,519 | ||||||
|
| |||||||
Steel – 2.3% | ||||||||
Allegheny Technologies, Inc. | 3,600 | 94,860 |
16 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
ArcelorMittal (Euronext Amsterdam) | 20,600 | $ | 304,561 | |||||
Arrium Ltd. | 262,017 | 212,816 | ||||||
Cia Siderurgica Nacional SA | 22,200 | 122,747 | ||||||
Cliffs Natural Resources, Inc. | 3,100 | 112,437 | ||||||
Commercial Metals Co. | 60,200 | 828,352 | ||||||
Eregli Demir ve Celik Fabrikalari TAS | 93,900 | 111,575 | ||||||
Evraz PLC | 29,200 | 111,415 | ||||||
Fortescue Metals Group Ltd. | 30,800 | 129,780 | ||||||
Gerdau SA | 18,900 | 165,173 | ||||||
Hitachi Metals Ltd. | 10,000 | 93,687 | ||||||
Hyundai Steel Co. | 1,400 | 100,593 | ||||||
JFE Holdings, Inc. | 67,400 | 951,279 | ||||||
Kumba Iron Ore Ltd. | 1,800 | 112,580 | ||||||
Metalurgica Gerdau SA (Preference Shares) | 9,400 | 105,337 | ||||||
Nippon Steel & Sumitomo Metal Corp. | 193,000 | 426,013 | ||||||
Novolipetsk Steel OJSC (GDR)(a) | 6,300 | 119,007 | ||||||
Nucor Corp. | 7,000 | 280,910 | ||||||
POSCO | 1,560 | 490,393 | ||||||
ThyssenKrupp AG | 8,500 | 193,694 | ||||||
United States Steel Corp. | 18,060 | 368,243 | ||||||
Vale SA | 28,600 | 527,348 | ||||||
Vale SA (Preference Shares) | 44,000 | 787,474 | ||||||
Vale SA (Sponsored ADR) (Local Preference Shares) | 134,690 | 2,396,135 | ||||||
Voestalpine AG | 3,800 | 119,655 | ||||||
|
| |||||||
9,266,064 | ||||||||
|
| |||||||
52,018,367 | ||||||||
|
| |||||||
Equity: Other – 9.6% | ||||||||
Diversified/Specialty – 7.9% | ||||||||
Agung Podomoro Land TBK PT(b) | 484,800 | 18,311 | ||||||
Alam Sutera Realty TBK PT | 875,300 | 52,571 | ||||||
Artis Real Estate Investment Trust | 16,860 | 275,837 | ||||||
Asian Property Development PCL | 47,400 | 13,454 | ||||||
Australand Property Group | 61,962 | 193,929 | ||||||
Ayala Land, Inc. | 771,100 | 440,735 | ||||||
Azrieli Group | 1,400 | 31,221 | ||||||
Bakrieland Development TBK PT(b) | 2,835,100 | 19,075 | ||||||
Beni Stabili SpA | 57,200 | 32,147 | ||||||
BioMed Realty Trust, Inc. | 29,260 | 559,451 | ||||||
British Land Co. PLC | 140,912 | 1,203,625 | ||||||
Bumi Serpong Damai PT | 416,100 | 53,324 | ||||||
CA Immobilien Anlagen AG(b) | 3,400 | 42,160 | ||||||
Capital Property Fund | 284,900 | 327,923 | ||||||
CapitaLand Ltd. | 178,000 | 474,040 | ||||||
Central Pattana PCL | 44,900 | 104,010 | ||||||
Ciputra Development Tbk PT | 676,200 | 47,621 | ||||||
Ciputra Property TBK PT | 172,400 | 11,805 | ||||||
Ciputra Surya TBK PT | 44,400 | 8,057 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 17 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
City Developments Ltd. | 21,000 | $ | 196,077 | |||||
Cofinimmo | 5,390 | 612,973 | ||||||
Conwert Immobilien Invest SE | 4,900 | 56,762 | ||||||
Daejan Holdings PLC | 600 | 28,011 | ||||||
Dexus Property Group | 144,900 | 147,890 | ||||||
Duke Realty Corp. | 34,290 | 496,519 | ||||||
Dundee Real Estate Investment Trust | 17,330 | 635,939 | ||||||
Eastern & Oriental Bhd | 61,300 | 33,005 | ||||||
Emira Property Fund | 29,400 | 45,184 | ||||||
Even Construtora e Incorporadora SA | 13,500 | 53,839 | ||||||
Evergrande Real Estate Group Ltd. | 2,401,100 | 1,041,383 | ||||||
F&C Commercial Property Trust Ltd. | 17,600 | 28,998 | ||||||
Filinvest Land, Inc. | 548,800 | 19,425 | ||||||
Fonciere Des Regions | 1,100 | 88,537 | ||||||
Franshion Properties China Ltd. | 243,200 | 74,047 | ||||||
Gecina SA | 700 | 77,650 | ||||||
Globe Trade Centre SA(b) | 6,300 | 16,235 | ||||||
GPT Group | 55,410 | 204,621 | ||||||
Growthpoint Properties Ltd. | 201,400 | 548,408 | ||||||
Guangzhou R&F Properties Co., Ltd. | 64,200 | 78,467 | ||||||
H&R Real Estate Investment Trust | 700 | 16,912 | ||||||
Hang Lung Properties Ltd. | 133,000 | 461,379 | ||||||
Helbor Empreendimentos SA | 8,500 | 47,919 | ||||||
Henderson Land Development Co., Ltd. | 70,000 | 483,191 | ||||||
Hysan Development Co., Ltd. | 32,000 | 141,986 | ||||||
ICADE | 3,764 | 338,764 | ||||||
IGB Corp. Bhd | 68,000 | 54,317 | ||||||
IJM Land Bhd | 36,900 | 26,642 | ||||||
IMMOFINANZ AG(b) | 35,800 | 138,387 | ||||||
Intiland Development TBK PT | 552,300 | 18,046 | ||||||
Investors Real Estate Trust | 19,199 | 161,656 | ||||||
Is Gayrimenkul Yatirim Ortakligi AS | 15,000 | 12,132 | ||||||
Kawasan Industri Jababeka TBK PT(b) | 1,314,800 | 27,893 | ||||||
Keppel Land Ltd. | 40,000 | 110,800 | ||||||
Kerry Properties Ltd. | 25,500 | 126,751 | ||||||
Kiwi Income Property Trust | 61,600 | 59,228 | ||||||
KLCC Property Holdings Bhd | 28,500 | 55,484 | ||||||
Land Securities Group PLC | 56,609 | 735,645 | ||||||
Lexington Realty Trust | 54,500 | 517,205 | ||||||
Lippo Karawaci TBK PT | 1,029,400 | 99,339 | ||||||
London & Stamford Property PLC | 17,100 | 31,724 | ||||||
Longfor Properties Co., Ltd. | 53,200 | 93,854 | ||||||
LPN Development PCL | 46,400 | 27,410 | ||||||
LPN Development PCL (NVDR) | 429,100 | 253,480 | ||||||
Mah Sing Group Bhd | 33,800 | 24,870 | ||||||
Mapletree Commercial Trust | 638,000 | 631,592 | ||||||
Megaworld Corp. | 701,600 | 41,628 | ||||||
Mitsubishi Estate Co., Ltd. | 109,000 | 2,157,170 | ||||||
Mitsui Fudosan Co., Ltd. | 117,000 | 2,365,126 |
18 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Mobimo Holding AG(b) | 200 | $ | 46,387 | |||||
Morguard Real Estate Investment Trust | 14,230 | 256,461 | ||||||
New World Development Co., Ltd. | 721,000 | 1,109,317 | ||||||
Nomura Real Estate Holdings, Inc. | 2,400 | 43,079 | ||||||
Pakuwon Jati TBK PT | 958,800 | 27,831 | ||||||
PDG Realty SA Empreendimentos e Participacoes | 75,100 | 126,458 | ||||||
Poly Property Group Co., Ltd.(b) | 119,500 | 71,616 | ||||||
Pruksa Real Estate PCL | 37,100 | 23,725 | ||||||
Quality Houses PCL | 198,900 | 13,887 | ||||||
Redefine Properties Ltd. | 155,500 | 161,407 | ||||||
Regal Real Estate Investment Trust | 123,600 | 33,643 | ||||||
Resilient Property Income Fund Ltd. | 16,200 | 85,216 | ||||||
Robinsons Land Corp. | 112,900 | 52,060 | ||||||
SA Corporate Real Estate Fund Nominees Pty Ltd. | 115,000 | 46,819 | ||||||
SC Asset Corp. PCL | 14,700 | 9,208 | ||||||
Sentul City TBK PT(b) | 1,562,800 | 31,162 | ||||||
Sino Land Co., Ltd. | 116,000 | 207,547 | ||||||
Sinpas Gayrimenkul Yatirim Ortakligi AS | 15,300 | 10,758 | ||||||
Soho China Ltd. | 170,500 | 115,368 | ||||||
SP Setia Bhd | 41,500 | 49,184 | ||||||
Spirit Realty Capital, Inc.(b) | 47,956 | 783,601 | ||||||
Sponda Oyj | 13,400 | 59,438 | ||||||
Sumitomo Realty & Development Co., Ltd. | 52,000 | 1,436,870 | ||||||
Summarecon Agung TBK PT | 307,100 | 55,916 | ||||||
Sun Hung Kai Properties Ltd. | 177,006 | 2,446,919 | ||||||
Suntec Real Estate Investment Trust | 340,000 | 446,570 | ||||||
Supalai PCL | 431,400 | 270,240 | ||||||
Swire Properties Ltd. | 227,500 | 704,370 | ||||||
TAG Immobilien AG | 3,200 | 36,927 | ||||||
Tecnisa SA | 8,000 | 33,086 | ||||||
Telecity Group PLC | 28,847 | 420,205 | ||||||
Tokyu Land Corp. | 16,000 | 89,823 | ||||||
Tokyu REIT, Inc. | 25 | 131,970 | ||||||
Torunlar Gayrimenkul Yatirim Ortakligi AS | 8,700 | 13,795 | ||||||
United Urban Investment Corp. | 100 | 120,238 | ||||||
UOL Group Ltd. | 160,734 | 743,719 | ||||||
Vornado Realty Trust | 4,310 | 345,705 | ||||||
Wallenstam AB | 6,000 | 65,955 | ||||||
Wereldhave NV | 700 | 41,377 | ||||||
Weyerhaeuser Co. | 31,680 | 877,219 | ||||||
Wharf Holdings Ltd. | 218,000 | 1,490,592 | ||||||
Wheelock & Co., Ltd. | 94,000 | 411,835 | ||||||
Wihlborgs Fastigheter AB | 2,300 | 35,109 | ||||||
Yuexiu Property Co., Ltd. | 502,100 | 137,285 | ||||||
|
| |||||||
31,373,693 | ||||||||
|
|
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 19 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Health Care – 1.7% | ||||||||
Chartwell Seniors Housing Real Estate Investment Trust | 51,830 | $ | 532,960 | |||||
HCP, Inc. | 33,500 | 1,484,050 | ||||||
Health Care REIT, Inc. | 19,530 | 1,160,668 | ||||||
LTC Properties, Inc. | 14,050 | 463,791 | ||||||
Omega Healthcare Investors, Inc. | 25,780 | 591,393 | ||||||
Sabra Health Care REIT, Inc. | 21,140 | 469,731 | ||||||
Senior Housing Properties Trust | 30,490 | 670,170 | ||||||
Ventas, Inc. | 21,820 | 1,380,551 | ||||||
|
| |||||||
6,753,314 | ||||||||
|
| |||||||
38,127,007 | ||||||||
|
| |||||||
Retail – 6.7% | ||||||||
Regional Mall – 2.5% | ||||||||
BR Malls Participacoes SA | 58,200 | 765,092 | ||||||
CapitaMall Trust | 219,000 | 376,812 | ||||||
CFS Retail Property Trust Group | 65,300 | 132,309 | ||||||
General Growth Properties, Inc. | 76,870 | 1,511,264 | ||||||
Glimcher Realty Trust | 47,854 | 510,602 | ||||||
Multiplan Empreendimentos Imobiliarios SA | 15,400 | 451,146 | ||||||
Simon Property Group, Inc. | 23,411 | 3,563,388 | ||||||
Westfield Group | 253,135 | 2,798,183 | ||||||
|
| |||||||
10,108,796 | ||||||||
|
| |||||||
Shopping Center/Other Retail – 4.2% | ||||||||
Aeon Mall Co., Ltd. | 27,400 | 710,697 | ||||||
Akmerkez Gayrimenkul Yatirim Ortakligi AS | 1,600 | 16,546 | ||||||
Aliansce Shopping Centers SA | 23,000 | 261,589 | ||||||
Atrium European Real Estate Ltd. | 3,900 | 22,116 | ||||||
BWP Trust | 16,200 | 35,126 | ||||||
Capital & Counties Properties PLC | 27,100 | 98,990 | ||||||
Capital Shopping Centres Group PLC | 19,900 | 107,119 | ||||||
CapitaMalls Asia Ltd. | 47,900 | 72,282 | ||||||
Centro Retail Australia | 53,200 | 118,613 | ||||||
Charter Hall Retail REIT | 9,300 | 35,038 | ||||||
Citycon Oyj | 85,490 | 280,019 | ||||||
Corio NV | 17,788 | 792,418 | ||||||
Deutsche Euroshop AG | 2,000 | 81,740 | ||||||
Eurocommercial Properties NV | 15,800 | 619,615 | ||||||
Fortune Real Estate Investment Trust | 351,000 | 276,926 | ||||||
Fountainhead Property Trust | 67,200 | 62,126 | ||||||
Fukuoka REIT Co. | 17 | 127,878 | ||||||
Hammerson PLC | 22,200 | 169,289 | ||||||
Hyprop Investments Ltd. | 38,300 | 295,953 | ||||||
Iguatemi Empresa de Shopping Centers SA | 4,600 | 58,433 | ||||||
Japan Retail Fund Investment Corp. | 387 | 705,533 | ||||||
Kimco Realty Corp. | 31,010 | 605,315 | ||||||
Kite Realty Group Trust | 64,259 | 351,497 | ||||||
Klepierre | 22,050 | 817,907 |
20 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Link REIT (The) | 253,023 | $ | 1,255,730 | |||||
Mercialys SA | 22,300 | 467,758 | ||||||
Pavilion Real Estate Investment Trust | 58,500 | 26,504 | ||||||
Regency Centers Corp. | 23,220 | 1,115,024 | ||||||
Retail Opportunity Investments Corp. | 66,259 | 838,839 | ||||||
RioCan Real Estate Investment Trust (Toronto) | 10,391 | 283,405 | ||||||
Shaftesbury PLC | 9,900 | 87,670 | ||||||
Siam Future Development PCL | 26,700 | 6,610 | ||||||
SM Prime Holdings, Inc. | 387,800 | 136,296 | ||||||
Sonae Sierra Brasil SA | 2,200 | 36,828 | ||||||
Tanger Factory Outlet Centers | 18,500 | 582,195 | ||||||
Unibail-Rodamco SE | 12,325 | 2,776,028 | ||||||
Vastned Retail NV | 600 | 27,798 | ||||||
Weingarten Realty Investors | 36,970 | 998,190 | ||||||
Westfield Retail Trust | 443,360 | 1,423,661 | ||||||
|
| |||||||
16,785,301 | ||||||||
|
| |||||||
26,894,097 | ||||||||
|
| |||||||
Residential – 3.8% | ||||||||
Multi-Family – 3.3% | ||||||||
Ascott Residence Trust | 270,000 | 281,834 | ||||||
Associated Estates Realty Corp. | 55,190 | 827,298 | ||||||
AvalonBay Communities, Inc. | 4,710 | 638,488 | ||||||
Berkeley Group Holdings PLC(b) | 17,440 | 429,164 | ||||||
Brookfield Incorporacoes SA | 145,100 | 253,615 | ||||||
Brookfield Incorporacoes SA(b) | 38,332 | 67,377 | ||||||
China Overseas Land & Investment Ltd. | 616,700 | 1,613,703 | ||||||
China Resources Land Ltd. | 142,500 | 323,614 | ||||||
China Vanke Co., Ltd. – Class B | 416,544 | 543,098 | ||||||
Consorcio ARA SAB de CV(b) | 66,900 | 21,152 | ||||||
Corp. GEO SAB de CV(b) | 23,600 | 28,333 | ||||||
Cyrela Brazil Realty SA Empreendimentos e Participacoes | 18,300 | 155,154 | ||||||
Desarrolladora Homex SAB de CV(b) | 14,600 | 32,324 | ||||||
Deutsche Wohnen AG | 5,800 | 106,223 | ||||||
Emlak Konut Gayrimenkul Yatirim Ortakligi AS | 43,300 | 64,496 | ||||||
Equity Residential | 12,240 | 702,698 | ||||||
Essex Property Trust, Inc. | 2,770 | 415,500 | ||||||
Ez Tec Empreendimentos e Participacoes SA | 3,400 | 44,696 | ||||||
Gafisa SA(b) | 24,800 | 45,545 | ||||||
GAGFAH SA(b) | 5,429 | 61,787 | ||||||
GSW Immobilien AG | 16,336 | 671,479 | ||||||
JHSF Participacoes SA | 4,800 | 20,844 | ||||||
KWG Property Holding Ltd. | 1,135,000 | 670,628 | ||||||
Land and Houses PCL | 202,700 | 56,657 | ||||||
Meritage Homes Corp.(b) | 10,100 | 373,498 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 21 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Mirvac Group | 467,627 | $ | 729,599 | |||||
MRV Engenharia e Participacoes SA | 82,100 | 416,352 | ||||||
NVR, Inc.(b) | 460 | 415,720 | ||||||
Property Perfect PCL | 309,500 | 11,209 | ||||||
PulteGroup, Inc.(b) | 24,450 | 423,963 | ||||||
Rodobens Negocios Imobiliarios SA | 2,300 | 14,495 | ||||||
Rossi Residencial SA | 162,400 | 341,423 | ||||||
Shimao Property Holdings Ltd. | 139,500 | 264,592 | ||||||
Sino-Ocean Land Holdings Ltd. | 305,700 | 191,052 | ||||||
Stockland | 470,640 | 1,688,661 | ||||||
Urbi Desarrollos Urbanos SAB de CV(b) | 406,300 | 254,441 | ||||||
Vista Land & Lifescapes, Inc. | 188,500 | 21,947 | ||||||
|
| |||||||
13,222,659 | ||||||||
|
| |||||||
Self Storage – 0.2% | ||||||||
Extra Space Storage, Inc. | 19,850 | 684,627 | ||||||
|
| |||||||
Single Family – 0.3% | ||||||||
Fortune Brands Home & Security, Inc.(b) | 14,520 | 412,949 | ||||||
Realogy Holdings Corp.(b) | 24,223 | 860,885 | ||||||
|
| |||||||
1,273,834 | ||||||||
|
| |||||||
15,181,120 | ||||||||
|
| |||||||
Office – 2.8% | ||||||||
Office – 2.8% | ||||||||
Allied Properties Real Estate Investment Trust | 12,960 | 410,049 | ||||||
Allreal Holding AG(b) | 200 | 30,216 | ||||||
Befimmo SCA Sicafi | 900 | 54,827 | ||||||
Boston Properties, Inc. | 7,880 | 837,644 | ||||||
Brandywine Realty Trust | 43,500 | 504,600 | ||||||
CapitaCommercial Trust | 96,000 | 123,173 | ||||||
Castellum AB | 34,970 | 468,743 | ||||||
Cominar Real Estate Investment Trust | 25,367 | 605,760 | ||||||
Commonwealth Property Office Fund | 307,110 | 343,826 | ||||||
Corporate Office Properties Trust | 22,120 | 551,894 | ||||||
Derwent London PLC | 4,000 | 133,108 | ||||||
Douglas Emmett, Inc. | 24,360 | 571,242 | ||||||
Fabege AB | 7,400 | 73,494 | ||||||
Great Portland Estates PLC | 12,400 | 93,637 | ||||||
Hongkong Land Holdings Ltd. | 120,000 | 758,733 | ||||||
Hufvudstaden AB – Class A | 50,346 | 639,458 | ||||||
Investa Office Fund | 15,700 | 48,398 | ||||||
Japan Excellent, Inc. | 63 | 349,274 | ||||||
Japan Prime Realty Investment Corp. | 32 | 96,442 | ||||||
Japan Real Estate Investment Corp. | 58 | 580,772 | ||||||
Kenedix Realty Investment Corp. – | 131 | 447,474 | ||||||
Kilroy Realty Corp. | 5,243 | 232,842 | ||||||
Liberty Property Trust | 8,910 | 312,919 |
22 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Mack-Cali Realty Corp. | 21,600 | $ | 561,384 | |||||
Nippon Building Fund, Inc. | 64 | 687,566 | ||||||
Nomura Real Estate Office Fund, Inc. | 12 | 75,493 | ||||||
Norwegian Property ASA | 15,400 | 23,095 | ||||||
NTT Urban Development Corp. | 46 | 37,904 | ||||||
Orix JREIT, Inc. | 103 | 501,521 | ||||||
Parkway Properties, Inc./MD | 32,220 | 443,669 | ||||||
Piedmont Office Realty Trust, Inc. | 21,250 | 378,250 | ||||||
PSP Swiss Property AG(b) | 1,500 | 137,755 | ||||||
Societe Immobiliere de Location pour l’Industrie et le Commerce | 600 | 67,270 | ||||||
Swiss Prime Site AG(b) | 1,700 | 141,925 | ||||||
Tokyo Tatemono Co., Ltd.(b) | 10,000 | 41,157 | ||||||
|
| |||||||
11,365,514 | ||||||||
|
| |||||||
Industrials – 1.0% | ||||||||
Industrial Warehouse Distribution – 0.9% |
| |||||||
Ascendas Real Estate Investment Trust | 83,000 | 160,144 | ||||||
Global Logistic Properties Ltd. | 345,000 | 723,842 | ||||||
Granite Real Estate, Inc. | 21,060 | 772,481 | ||||||
Hansteen Holdings PLC | 31,700 | 38,122 | ||||||
Mapletree Logistics Trust | 851,100 | 772,461 | ||||||
ProLogis, Inc. | 11,230 | 385,077 | ||||||
Segro PLC | 135,420 | 519,235 | ||||||
Ticon Industrial Connection PCL | 21,500 | 9,189 | ||||||
|
| |||||||
3,380,551 | ||||||||
|
| |||||||
Mixed Office Industrial – 0.1% | ||||||||
Amata Corp. PCL | 29,300 | 14,722 | ||||||
BR Properties SA | 17,400 | 227,882 | ||||||
Goodman Group | 50,340 | 231,096 | ||||||
|
| |||||||
473,700 | ||||||||
|
| |||||||
3,854,251 | ||||||||
|
| |||||||
Lodging – 0.9% | ||||||||
Lodging – 0.9% | ||||||||
Ashford Hospitality Trust, Inc. | 47,900 | 411,461 | ||||||
Far East Hospitality Trust(b) | 477,000 | 385,182 | ||||||
Great Eagle Holdings Ltd. | 145,000 | 427,989 | ||||||
Host Hotels & Resorts, Inc. | 27,970 | 404,446 | ||||||
InterContinental Hotels Group PLC | 21,802 | 539,420 | ||||||
Pebblebrook Hotel Trust | 9,472 | 200,996 | ||||||
RLJ Lodging Trust | 49,590 | 883,694 | ||||||
Strategic Hotels & Resorts, Inc.(b) | 42,550 | 233,599 | ||||||
|
| |||||||
3,486,787 | ||||||||
|
| |||||||
Food Beverage & Tobacco – 0.4% | ||||||||
Agricultural Products – 0.4% | ||||||||
Archer-Daniels-Midland Co. | 9,000 | 241,560 | ||||||
Bunge Ltd. | 11,030 | 783,461 | ||||||
Golden Agri-Resources Ltd. | 186,000 | 94,997 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 23 |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
IOI Corp. Bhd | 63,700 | $ | 105,601 | |||||
Kuala Lumpur Kepong Bhd | 14,100 | 99,007 | ||||||
Wilmar International Ltd. | 42,000 | 106,018 | ||||||
|
| |||||||
1,430,644 | ||||||||
|
| |||||||
Total Common Stocks | 248,386,323 | |||||||
|
| |||||||
Principal Amount (000) | ||||||||
INFLATION-LINKED SECURITIES – 17.5% |
| |||||||
United States – 17.5% | ||||||||
U.S. Treasury Inflation Index | ||||||||
0.625%, 7/15/21 (TIPS) | $ | 3,589 | 4,106,824 | |||||
1.875%, 7/15/15 (TIPS)(e)(f) | 59,921 | 65,486,597 | ||||||
|
| |||||||
Total Inflation-Linked Securities | 69,593,421 | |||||||
|
| |||||||
Contracts | ||||||||
OPTIONS PURCHASED - PUTS – 0.1% | ||||||||
Options on Equity Index – 0.1% | ||||||||
S&P 500 Index | 115 | 560,625 | ||||||
|
| |||||||
Shares | ||||||||
WARRANTS – 0.1% | ||||||||
Energy – 0.1% | ||||||||
Coal & Consumable Fuels – 0.1% | ||||||||
Coal India Ltd., Merril Lynch, expiring 11/02/15(b) | 16,210 | 104,331 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 0.0% |
| |||||||
Oil & Natural Gas Corp. Ltd., Deutsche Bank AG London, expiring 1/17/17(b) | 20,600 | 102,782 | ||||||
|
| |||||||
207,113 | ||||||||
|
| |||||||
Equity: Other – 0.0% | ||||||||
Diversified/Specialty – 0.0% | ||||||||
Emaar Properties PJSC, Merril Lynch, expiring 10/01/15(b) | 199,400 | 195,990 | ||||||
|
| |||||||
Total Warrants | 403,103 | |||||||
|
|
24 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Company | Shares | U.S. $ Value | ||||||
| ||||||||
INVESTMENT COMPANIES – 0.0% | ||||||||
Funds and Investment Trusts – 0.0% | ||||||||
CPN Retail Growth Leasehold Property Fund | 79,200 | $ | 44,185 | |||||
UK Commercial Property Trust Ltd./fund | 27,600 | 29,329 | ||||||
|
| |||||||
Total Investment Companies | 73,514 | |||||||
|
| |||||||
Contracts | ||||||||
OPTIONS PURCHASED - CALLS – 0.0% | ||||||||
Options on Funds and Investment | ||||||||
iShares Silver Trust | 436 | 2,834 | ||||||
SPDR Gold Trust | 313 | 13,772 | ||||||
|
| |||||||
Total Options Purchased – Calls | 16,606 | |||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 19.7% | ||||||||
Investment Companies – 9.9% | ||||||||
AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio, 0.15%(h) | 39,448,035 | 39,448,035 | ||||||
|
| |||||||
Principal Amount (000) | ||||||||
U.S. Treasury Bills – 9.8% | ||||||||
U.S. Treasury Bill | $ | 30,680 | 30,679,284 | |||||
Zero Coupon, 12/06/12(e) | 8,315 | 8,314,252 | ||||||
|
| |||||||
Total U.S. Treasury Bills | 38,993,536 | |||||||
|
| |||||||
Total Short-Term Investments | 78,441,571 | |||||||
|
| |||||||
Total Investments – 99.7% | 397,475,163 | |||||||
Other assets less liabilities – 0.3% | 1,091,817 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 398,566,980 | ||||||
|
|
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 25 |
Consolidated Portfolio of Investments
FUTURES CONTRACTS (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at October 31, 2012 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts |
| |||||||||||||||||||
Aluminum HG Futures | 28 | December 2012 | $ | 1,491,148 | $ | 1,330,000 | $ | (161,148 | ) | |||||||||||
Cocoa Futures | 120 | December 2012 | 3,127,939 | 2,997,700 | (130,239 | ) | ||||||||||||||
Cocoa Futures | 49 | December 2012 | 1,281,967 | 1,170,120 | (111,847 | ) | ||||||||||||||
Corn Futures | 8 | December 2012 | 319,181 | 302,300 | (16,881 | ) | ||||||||||||||
Gasoline RBOB Futures | 25 | December 2012 | 2,974,246 | 2,761,815 | (212,431 | ) | ||||||||||||||
Lean Hogs Futures | 68 | December 2012 | 2,015,947 | 2,129,080 | 113,133 | |||||||||||||||
Live Cattle Futures | 27 | December 2012 | 1,360,585 | 1,359,990 | (595 | ) | ||||||||||||||
Natural Gas Futures | 31 | December 2012 | 1,140,878 | 1,144,520 | 3,642 | |||||||||||||||
Platinum Futures | 99 | January 2013 | 7,616,588 | 7,806,150 | 189,562 | |||||||||||||||
Soybean Futures | 15 | March 2013 | 1,274,105 | 1,142,813 | (131,292 | ) | ||||||||||||||
Soybean Meal Futures | 25 | December 2012 | 1,068,337 | 1,205,500 | 137,163 | |||||||||||||||
Wheat Futures | 43 | December 2012 | 2,010,367 | 1,943,600 | (66,767 | ) | ||||||||||||||
Sold Contracts |
| |||||||||||||||||||
Aluminum HG Futures | 57 | December 2012 | 2,925,471 | 2,707,500 | 217,971 | |||||||||||||||
Brent Crude Oil Futures | 5 | December 2012 | 564,502 | 543,500 | 21,002 | |||||||||||||||
Cattle Feeder Futures | 44 | January 2013 | 3,299,752 | 3,271,400 | 28,352 | |||||||||||||||
Copper Londom Metal Exchange Futures | 8 | December 2012 | 1,613,990 | 1,551,950 | 62,040 | |||||||||||||||
Gas Oil Futures | 1 | December 2012 | 98,023 | 94,950 | 3,073 | |||||||||||||||
Gold 100 OZ Futures | 31 | December 2012 | 4,905,221 | 5,329,210 | (423,989 | ) | ||||||||||||||
Heating Oil Futures | 17 | December 2012 | 2,301,899 | 2,186,482 | 115,417 | |||||||||||||||
S&P 500 E Mini Index Futures | 109 | December 2012 | 7,905,066 | 7,667,060 | 238,006 | |||||||||||||||
Silver Futures | 8 | December 2012 | 1,146,145 | 1,292,640 | (146,495 | ) | ||||||||||||||
Sugar 11 Futures | 116 | March 2012 | 2,609,204 | 2,528,243 | 80,961 | |||||||||||||||
|
| |||||||||||||||||||
$ | (191,362 | ) | ||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to (000) | In Exchange (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Barclays Bank PLC Wholesale | USD | 13,383 | CNY | 84,967 | 11/07/12 | $ | 219,199 | |||||||||||||||||
Barclays Bank PLC Wholesale | EUR | 10,609 | USD | 13,444 | 12/14/12 | (312,470 | ) | |||||||||||||||||
Barclays Bank PLC Wholesale | JPY | 658,072 | USD | 8,456 | 12/14/12 | 209,099 | ||||||||||||||||||
Barclays Bank PLC Wholesale | USD | 636 | CHF | 600 | 12/14/12 | 8,975 | ||||||||||||||||||
Barclays Bank PLC Wholesale | USD | 715 | JPY | 55,974 | 12/14/12 | (13,927 | ) | |||||||||||||||||
BNP Paribas SA | GBP | 1,670 | USD | 2,674 | 12/14/12 | (20,629 | ) | |||||||||||||||||
BNP Paribas SA | NOK | 8,201 | USD | 1,422 | 12/14/12 | (13,882 | ) | |||||||||||||||||
Citibank NA | USD | 2,314 | AUD | 2,232 | 12/14/12 | (5,335 | ) | |||||||||||||||||
Credit Suisse London Branch (GFX) | USD | 824 | KRW | 931,615 | 11/07/12 | 29,874 | ||||||||||||||||||
Goldman Sachs International | USD | 803 | MXN | 10,500 | 11/07/12 | (1,359 | ) |
26 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
Counterparty | Contracts to (000) | In Exchange (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Goldman Sachs International | AUD | 7,697 | USD | 7,913 | 12/14/12 | $ | (49,837 | ) | ||||||||||||||||
HSBC Bank USA | HKD | 15,984 | USD | 2,062 | 11/07/12 | (33 | ) | |||||||||||||||||
HSBC Bank USA | USD | 2,063 | HKD | 15,984 | 12/14/12 | (9 | ) | |||||||||||||||||
HSBC Bank USA | USD | 884 | JPY | 69,046 | 12/14/12 | (18,985 | ) | |||||||||||||||||
Royal Bank of Canada | CAD | 13,021 | USD | 13,261 | 12/14/12 | 235,346 | ||||||||||||||||||
Royal Bank of Scotland PLC | MXN | 10,500 | USD | 802 | 11/07/12 | 611 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 2,061 | HKD | 15,984 | 11/07/12 | 1,333 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 536 | SGD | 664 | 11/07/12 | 7,871 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 799 | MXN | 10,500 | 12/14/12 | (735 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 1,049 | IDR | 10,096,953 | 11/07/12 | 1,370 | ||||||||||||||||||
State Street Bank & Trust Co. | BRL | 4,722 | USD | 2,313 | 11/07/12 | (11,256 | ) | |||||||||||||||||
State Street Bank & Trust Co. | CNY | 91,238 | USD | 14,482 | 11/07/12 | (124,178 | ) | |||||||||||||||||
State Street Bank & Trust Co. | IDR | 10,096,953 | USD | 1,050 | 11/07/12 | (934 | ) | |||||||||||||||||
State Street Bank & Trust Co. | INR | 50,591 | USD | 940 | 11/07/12 | 696 | ||||||||||||||||||
State Street Bank & Trust Co. | KRW | 931,615 | USD | 854 | 11/07/12 | 437 | ||||||||||||||||||
State Street Bank & Trust Co. | MYR | 2,611 | USD | 855 | 11/07/12 | (1,628 | ) | |||||||||||||||||
State Street Bank & Trust Co. | SGD | 664 | USD | 544 | 11/07/12 | (537 | ) | |||||||||||||||||
State Street Bank & Trust Co. | THB | 27,621 | USD | 887 | 11/07/12 | (14,062 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 2,323 | BRL | 4,722 | 11/07/12 | 785 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 990 | CNY | 6,271 | 11/07/12 | 14,386 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 908 | INR | 50,591 | 11/07/12 | 31,223 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 840 | MYR | 2,611 | 11/07/12 | 17,218 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 900 | THB | 27,621 | 11/07/12 | 1,179 | ||||||||||||||||||
State Street Bank & Trust Co. | ZAR | 3,076 | USD | 353 | 11/07/12 | (1,532 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 940 | INR | 50,591 | 12/07/12 | (6,359 | ) | |||||||||||||||||
State Street Bank & Trust Co. | THB | 27,621 | USD | 898 | 12/14/12 | (1,251 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 13,327 | CNY | 83,909 | 12/14/12 | 388 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 27 |
Consolidated Portfolio of Investments
Counterparty | Contracts (000) | In Exchange (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
State Street Bank & Trust Co. | USD | 1,045 | IDR | 10,096,953 | 12/14/12 | (101 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 853 | KRW | 931,615 | 12/14/12 | (238 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 854 | MYR | 2,611 | 12/14/12 | 1,127 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 544 | SGD | 664 | 12/14/12 | 526 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 351 | ZAR | 3,076 | 12/14/12 | 1,456 | ||||||||||||||||||
State Street Bank & Trust Co. | BRL | 4,722 | USD | 2,308 | 1/03/13 | 1,553 | ||||||||||||||||||
UBS AG | USD | 371 | ZAR | 3,076 | 11/07/12 | (16,775 | ) | |||||||||||||||||
UBS AG | USD | | 7,573 | | CAD | 7,408 | 12/14/12 | (162,200 | ) | |||||||||||||||
Westpac Banking Corp. | USD | 958 | AUD | 939 | 12/14/12 | 13,840 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | 20,240 | |||||||||||||||||||||||
|
|
CALL OPTIONS WRITTEN (see Note D)
Description | Contracts | Exercise Price | Expiration Month | U.S. $ Value | ||||||||||||
iShares Silver Trust(g) | 436 | $ | 42.00 | December 2012 | $ | (1,308 | ) | |||||||||
SPDR Gold Shares(g) | 313 | 190.00 | December 2012 | (3,600 | ) | |||||||||||
|
| |||||||||||||||
(premiums received $56,128) | $ | (4,908 | ) | |||||||||||||
|
|
PUT OPTIONS WRITTEN (see Note D)
Description | Contracts | Exercise Price | Expiration Month | U.S. $ Value | ||||||||||||
S&P 500 Index(g) | 115 | $ | 1,200.00 | March 2013 | $ | (161,000 | ) | |||||||||
SPDR Gold Shares(g) | 313 | 155.00 | December 2012 | (14,398 | ) | |||||||||||
|
| |||||||||||||||
(premiums received $518,798) | $ | (175,398 | ) | |||||||||||||
|
|
INTEREST RATE SWAP CONTRACTS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments by the | Payments by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Bank of America, NA | 3,830 | 3/30/22 | 2.263 | % | 3 Month LIBOR | $ | (220,251 | ) |
INFLATION (CPI) SWAP CONTRACTS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments by the | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Citibank, NA | 1,000 | 3/27/18 | 2.45 | % | CPI | # | $ | (5,724 | ) |
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
28 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
TOTAL RETURN SWAP CONTRACTS (see Note D)
Receive Return on | Index | # of or Units | Rate Paid by the Fund | Notional Amount (000) | Maturity Date | Counterparty | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||
Receive Total Return on Reference Index |
| |||||||||||||||||||||||
Receive | Dow Jones-UBS Commodity Index 2 Month Forward | 373,350 | 0.17 | % | $ | 114,737 | 12/17/12 | JPMorgan Chase Bank, NA | $ | (1,977,945 | ) | |||||||||||||
Receive | Dow Jones-UBS Commodity Index 2 Month Forward | 12,914 | 0.16 | % | 3,920 | 12/17/12 | JPMorgan Chase Bank, NA | (19,426 | ) | |||||||||||||||
Receive | Dow Jones-UBS Commodity Index 2 Month Forward | 23,486 | 0.16 | % | 7,218 | 12/17/12 | JPMorgan Chase Bank, NA | (124,391 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
$ | (2,121,762 | ) | ||||||||||||||||||||||
|
|
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2012, the aggregate market value of these securities amounted to $481,980 or 0.1% of net assets. |
(b) | Non-income producing security. |
(c) | Illiquid security. |
(d) | Fair valued. |
(e) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. The aggregate market value of these securities amounted to $10,645,563. |
(f) | Position, or a portion thereof, has been segregated to collateralize margin requirements for open futures contracts. The market value of the collateral amounted to $3,650,256. |
(g) | One contract relates to 100 shares. |
(h) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CHF – Swiss Franc
CNY – Chinese Yuan Renminbi
EUR – Euro
GBP – Great British Pound
HKD – Hong Kong Dollar
IDR – Indonesian Rupiah
INR – Indian Rupee
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 29 |
Consolidated Portfolio of Investments
JPY – Japanese Yen
KRW – South Korean Won
MXN – Mexican Peso
MYR – Malaysian Ringgit
NOK – Norwegian Krone
SGD – Singapore Dollar
THB – Thailand Baht
USD – United States Dollar
ZAR – South African Rand
Glossary:
ADR – American Depositary Receipt
GDR – Global Depositary Receipt
LIBOR – London Interbank Offered Rates
NVDR – Non Voting Depositary Receipt
OJSC – Open Joint Stock Company
REIT – Real Estate Investment Trust
TIPS – Treasury Inflation Protected Security
See notes to consolidated financial statements.
30 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Portfolio of Investments
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES
October 31, 2012
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $346,215,750) | $ | 358,027,128 | ||
Affiliated issuers (cost $39,448,035) | 39,448,035 | |||
Cash | 1,523,924 | (a) | ||
Foreign currencies, at value (cost $1,496,599) | 1,496,181 | |||
Receivable for capital stock sold | 1,881,789 | |||
Receivable for investment securities sold and foreign currency transactions | 1,299,577 | |||
Unrealized appreciation of forward currency exchange contracts | 798,492 | |||
Interest and dividends receivable | 682,617 | |||
Receivable for variation margin on futures contracts | 170,706 | |||
|
| |||
Total assets | 405,328,449 | |||
|
| |||
Liabilities | ||||
Options written, at value (premiums received $574,926) | 180,306 | |||
Unrealized depreciation on total return swap contracts | 2,121,762 | |||
Payable for investment securities purchased and foreign currency transactions | 1,733,642 | |||
Payable for capital stock redeemed | 1,231,699 | |||
Unrealized depreciation of forward currency exchange contracts | 778,252 | |||
Unrealized depreciation on interest rate swap contracts | 220,251 | |||
Management fee payable | 220,127 | |||
Distribution fee payable | 78,313 | |||
Administrative fee payable | 22,612 | |||
Transfer Agent fee payable | 17,120 | |||
Unrealized depreciation on inflation swap contracts | 5,724 | |||
Accrued expenses and other liabilities | 151,661 | |||
|
| |||
Total liabilities | 6,761,469 | |||
|
| |||
Net Assets | $ | 398,566,980 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 352,427 | ||
Additional paid-in capital | 403,427,730 | |||
Undistributed net investment income | 4,102,117 | |||
Accumulated net realized loss on investment and foreign currency transactions | (18,992,407 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 9,677,113 | |||
|
| |||
$ | 398,566,980 | |||
|
|
(a) | An amount of $504,631 has been segregated to collateralize margin requirements for open futures contracts outstanding at October 31, 2012. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 31 |
Consolidated Statement of Assets & Liabilities
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.01 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 67,988,691 | 6,002,235 | $ | 11.33 | * | ||||||
| ||||||||||||
C | $ | 15,973,848 | 1,428,206 | $ | 11.18 | |||||||
| ||||||||||||
Advisor | $ | 72,528,735 | 6,377,043 | $ | 11.37 | |||||||
| ||||||||||||
R | $ | 16,915 | 1,494 | $ | 11.32 | |||||||
| ||||||||||||
K | $ | 1,286,284 | 113,645 | $ | 11.32 | |||||||
| ||||||||||||
I | $ | 18,789,704 | 1,653,968 | $ | 11.36 | |||||||
| ||||||||||||
1 | $ | 221,971,327 | 19,665,115 | $ | 11.29 | |||||||
| ||||||||||||
2 | $ | 11,476 | 1,000 | $ | 11.48 | |||||||
|
* | The maximum offering price per share for Class A shares was $11.83 which reflects a sales charge of 4.25%. |
See notes to consolidated financial statements.
32 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Statement of Assets & Liabilities
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended October 31, 2012
Investment Income | ||||||||
Dividends | ||||||||
Unaffiliated issuers (net of foreign taxes withheld of $407,439) | $ | 7,406,648 | ||||||
Affiliated issuers | 33,350 | |||||||
Interest | 190,103 | $ | 7,630,101 | |||||
|
| |||||||
Expenses | ||||||||
Management fee (see Note B) | 2,763,397 | |||||||
Distribution fee—Class A | 197,811 | |||||||
Distribution fee—Class C | 165,219 | |||||||
Distribution fee—Class R | 69 | |||||||
Distribution fee—Class K | 1,546 | |||||||
Distribution fee—Class 1 | 504,411 | |||||||
Transfer agency—Class A | 36,569 | |||||||
Transfer agency—Class C | 10,696 | |||||||
Transfer agency—Advisor Class | 37,888 | |||||||
Transfer agency—Class R | 29 | |||||||
Transfer agency—Class K | 1,072 | |||||||
Transfer agency—Class I | 7,890 | |||||||
Transfer agency—Class 1 | 50,806 | |||||||
Transfer agency—Class 2 | 3 | |||||||
Custodian | 256,412 | |||||||
Registration fees | 104,383 | |||||||
Audit | 79,466 | |||||||
Printing | 77,542 | |||||||
Administrative | 76,745 | |||||||
Legal | 36,684 | |||||||
Directors’ fees | 9,462 | |||||||
Miscellaneous | 23,157 | |||||||
|
| |||||||
Total expenses | 4,441,257 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (808,446 | ) | ||||||
|
| |||||||
Net expenses | 3,632,811 | |||||||
|
| |||||||
Net investment income | 3,997,290 | |||||||
|
|
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 33 |
Consolidated Statement of Operations
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||
Net realized gain (loss) on: | ||||||
Investment transactions | $ | (5,710,964 | )(a) | |||
Futures contracts | (1,124,755 | ) | ||||
Options written | 1,701,043 | |||||
Swap contracts | (83,430 | ) | ||||
Foreign currency transactions | (81,914 | ) | ||||
Net change in unrealized appreciation/depreciation of: | ||||||
Investments | 17,439,307 | (b) | ||||
Futures contracts | 217,373 | |||||
Options written | (199,635 | ) | ||||
Swap contracts | (3,951,807 | ) | ||||
Foreign currency denominated assets and liabilities | 495,819 | |||||
|
| |||||
Net gain on investment and foreign currency transactions | 8,701,037 | |||||
|
| |||||
Net Increase in Net Assets from Operations | $ | 12,698,327 | ||||
|
|
(a) | Net of foreign capital gains taxes of $2,633. |
(b) | Net of increase in accrued foreign capital gains taxes of $7,497. |
See notes to consolidated financial statements.
34 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Statement of Operations
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2012 | Year Ended October 31, 2011 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 3,997,290 | $ | 2,264,727 | ||||
Net realized loss on investment and foreign currency transactions | (5,300,020 | ) | (21,795,710 | ) | ||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 14,001,057 | (5,360,071 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 12,698,327 | (24,891,054 | ) | |||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (509,447 | ) | (92,210 | ) | ||||
Class C | (45,930 | ) | (20,530 | ) | ||||
Advisor Class | (511,117 | ) | (45,116 | ) | ||||
Class R | (49 | ) | (328 | ) | ||||
Class K | (2,741 | ) | (351 | ) | ||||
Class I | (151,472 | ) | (374 | ) | ||||
Class 1 | (1,535,734 | ) | (35,343 | ) | ||||
Class 2 | – 0 | – | (367,410 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 51,614,977 | 348,866,052 | ||||||
|
|
|
| |||||
Total increase | 61,556,814 | 323,413,336 | ||||||
Net Assets | ||||||||
Beginning of period | 337,010,166 | 13,596,830 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $4,102,117 and $1,120,945, respectively) | $ | 398,566,980 | $ | 337,010,166 | ||||
|
|
|
|
See notes to consolidated financial statements.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 35 |
Consolidated Statement of Changes in Net Assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
NOTE A
Significant Accounting Policies
AllianceBernstein Bond Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Fund, which is a Maryland corporation, operates as a series company currently comprised of five portfolios: the Intermediate Bond Portfolio, the Bond Inflation Strategy Portfolio, the Municipal Bond Inflation Strategy Portfolio, the Real Asset Strategy Portfolio (the “Strategy”) and the Limited Duration High Income Portfolio. They are each diversified Portfolios, with the exception of the Limited Duration High Income Portfolio, which is non-diversified. The Limited Duration High Income Portfolio commenced operations on December 7, 2011. Each Portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the Strategy. As part of the Strategy’s investment strategy, the Strategy seeks to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Strategy organized under the laws of the Cayman Islands (the “Subsidiary”). The Strategy and the Subsidiary commenced operations on March 8, 2010. The Subsidiary was incorporated on February 1, 2010. The Strategy is the sole shareholder of the Subsidiary and it is intended that the Strategy will remain the sole shareholder and will continue to control the Subsidiary. Under the Articles of Association of the Subsidiary, shares issued by the Subsidiary confer upon a shareholder the right to receive notice of, to attend and to vote at general meetings of the Subsidiary and shall confer upon the shareholder rights in a winding-up or repayment of capital and the right to participate in the profits or assets of the Subsidiary. As of October 31, 2012, net assets of the Strategy were $398,566,980, of which $73,687,452, or approximately 18.49%, represented the Strategy’s ownership of all issued shares and voting rights of the Subsidiary. This report presents the consolidated financial statements of AllianceBernstein Real Asset Strategy and the Subsidiary. All intercompany transactions and balances have been eliminated in consolidation. The Strategy offers Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2 shares. Class 1 shares are sold only to the private clients of Sanford C. Bernstein & Co. LLC by its registered representatives. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer
36 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Strategy.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors.
In general, the market value of securities which are readily available and deemed reliable are determined as follows: Securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures contracts are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Investments in money market funds are valued at their net asset value each day.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 37 |
Notes to Consolidated Financial Statements
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Strategy may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Strategy values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Strategy would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset (including those valued based on their market values as described in Note 1 above) or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Strategy. Unobservable inputs reflect the Strategy’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Strategy’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
38 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, by pricing vendors, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options and warrants are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option or a warrant depends upon the contractual terms of, and specific risks inherent in, the option or warrant as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options will be classified as Level 2. For options or warrants that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options and warrants are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 39 |
Notes to Consolidated Financial Statements
The following table summarizes the valuation of the Strategy’s investments by the above fair value hierarchy levels as of October 31, 2012:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Energy | $ | 59,431,609 | $ | 36,596,927 | $ | – 0 | – | $ | 96,028,536 | |||||||
Materials | 24,046,352 | 27,949,525 | 22,490 | 52,018,367 | ||||||||||||
Equity:Other | 13,972,865 | 24,154,142 | – 0 | – | 38,127,007 | |||||||||||
Retail | 12,255,264 | 14,638,833 | – 0 | – | 26,894,097 | |||||||||||
Residential | 7,451,377 | 7,729,743 | – 0 | – | 15,181,120 | |||||||||||
Office | 5,727,586 | 5,637,928 | – 0 | – | 11,365,514 | |||||||||||
Industrials | 1,385,440 | 2,468,811 | – 0 | – | 3,854,251 | |||||||||||
Lodging | 2,519,378 | 967,409 | – 0 | – | 3,486,787 | |||||||||||
Food Beverage & Tobacco | 1,025,021 | 405,623 | – 0 | – | 1,430,644 | |||||||||||
Inflation-Linked Securities | – 0 | – | 69,593,421 | – 0 | – | 69,593,421 | ||||||||||
Options Purchased – Puts | – 0 | – | 560,625 | – 0 | – | 560,625 | ||||||||||
Warrants | – 0 | – | 195,990 | 207,113 | 403,103 | |||||||||||
Investment Companies | – 0 | – | 73,514 | – 0 | – | 73,514 | ||||||||||
Options Purchased – Calls | – 0 | – | 16,606 | – 0 | – | 16,606 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 39,448,035 | – 0 | – | – 0 | – | 39,448,035 | ||||||||||
U.S. Treasury Bills | – 0 | – | 38,993,536 | – 0 | – | 38,993,536 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 167,262,927 | 229,982,633+ | 229,603 | 397,475,163 | ||||||||||||
Other Financial Instruments* : | ||||||||||||||||
Assets: | ||||||||||||||||
Futures Contracts | 1,210,322 | – 0 | – | – 0 | – | 1,210,322 | # | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 798,492 | – 0 | – | 798,492 | ||||||||||
Liabilities: | ||||||||||||||||
Futures Contracts | (1,401,684 | ) | – 0 | – | – 0 | – | (1,401,684 | )# | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (778,252 | ) | – 0 | – | (778,252 | ) | ||||||||
Call Options Written | – 0 | – | (4,908 | ) | – 0 | – | (4,908 | ) | ||||||||
Put Options Written | – 0 | – | (175,398 | ) | – 0 | – | (175,398 | ) | ||||||||
Interest Rate Swap Contracts | – 0 | – | (220,251 | ) | – 0 | – | (220,251 | ) | ||||||||
Inflation (CPI) Swap Contracts | – 0 | – | – 0 | – | (5,724 | ) | (5,724 | ) | ||||||||
Total Return Swap Contracts | – 0 | – | (2,121,762 | ) | – 0 | – | (2,121,762 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total++ | $ | 167,071,565 | $ | 227,480,554 | $ | 223,879 | $ | 394,775,998 | ||||||||
|
|
|
|
|
|
|
|
* | Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. Other financial instruments may also include options written which are valued at market value. |
+ | A significant portion of the Strategy’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
++ | There were de minimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period. |
# | Only variation margin receivable/payable at period end is reported within the consolidated statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of futures contracts as reported in the consolidated portfolio of investments. |
The Strategy recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
40 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Energy | Materials | Warrants | ||||||||||
Balance as of 10/31/11 | $ | 1,036,917 | $ | – 0 | – | $ | – 0 | – | ||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | – 0 | – | ||||||
Realized gain (loss) | – 0 | – | – 0 | – | 4,480 | |||||||
Change in unrealized appreciation/depreciation | – 0 | – | (73,071 | ) | 387 | |||||||
Purchases | – 0 | – | – 0 | – | 315,349 | |||||||
Sales | – 0 | – | – 0 | – | (113,103 | ) | ||||||
Transfers in to Level 3 | – 0 | – | 95,561 | – 0 | – | |||||||
Transfers out of Level 3 | (1,036,917 | ) | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/12** | $ | – 0 | – | $ | 22,490 | $ | 207,113 | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciationfrom Investments held as of 10/31/12* | $ | – 0 | – | $ | (73,071 | ) | $ | 387 | ||||
|
|
|
|
|
| |||||||
Inflation (CPI) Swap Contracts | Total | |||||||||||
Balance as of 10/31/11 | $ | – 0 | – | $ | 1,036,917 | |||||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | ||||||||
Realized gain (loss) | – 0 | – | 4,480 | |||||||||
Change in unrealized appreciation/depreciation | (5,724 | ) | (78,408 | ) | ||||||||
Purchases | – 0 | – | 315,349 | |||||||||
Sales | – 0 | – | (113,103 | ) | ||||||||
Transfers in to Level 3 | – 0 | – | 95,561 | |||||||||
Transfers out of Level 3 | – 0 | – | (1,036,917 | ) | ||||||||
|
|
|
| |||||||||
Balance as of 10/31/12 | $ | (5,724 | ) | $ | 223,879 | |||||||
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciationfrom Investments held as of 10/31/12* | $ | (5,724 | ) | $ | (78,408 | ) | ||||||
|
|
|
|
* | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying consolidated statement of operations. |
** | There were de minimis transfers under 1% of net assets during the reporting period. |
The Adviser has established a Valuation Committee (the “Committee”) which is responsible for overseeing the pricing and valuation of all securities held in the Strategy. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 41 |
Notes to Consolidated Financial Statements
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable comfort over the accuracy of prices including: 1) periodic vendor due diligence meetings, review methodologies, new developments, process at vendors, 2) daily compare of security valuation versus prior day for all fixed income securities that exceed established thresholds, 3) monthly multi-source pricing compares, reviewed and submitted to the Committee, and 4) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, there are several processes outside of the pricing process that are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Strategy’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Strategy’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Strategy may be subject to taxes imposed by countries in which it
42 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
If, during a taxable year, the Subsidiary’s taxable losses (and other deductible items) exceed its income and gains, the net loss will not pass through to the Strategy as a deductible amount for Federal income tax purposes. Note that the loss from the Subsidiary’s contemplated activities also cannot be carried forward to reduce future Subsidiary’s income in subsequent years. However, if the Subsidiary’s taxable gains exceed its losses and other deductible items during a taxable year, the net gain will pass through to the Strategy as income for Federal income tax purposes.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Strategy’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (all years since inception of the Strategy) and has concluded that no provision for income tax is required in the Strategy’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Strategy is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Strategy amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Strategy are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Strategy represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Strategy in proportion to each Strategy’s respective net assets. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 43 |
Notes to Consolidated Financial Statements
NOTE B
Management Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Strategy pays the Adviser a management fee at an annual rate of .75% of the Strategy’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.05%, 1.75%, 0.75%, 1.25%, 1.00%, 0.75%, 1.00% and 0.75% of daily average net assets for Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1 and Class 2 shares, respectively. Under the agreement, fees waived and expenses borne by the Adviser are subject to repayment by the Strategy until March 8, 2013. No repayment will be made that would cause the Strategy’s total annualized operating expenses to exceed the net fee percentage set forth above or would exceed the amount of offering expenses as recorded by the Strategy on or before March 8, 2011. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2013, and then may be extended by the Adviser for additional one-year terms. For the year ended October 31, 2012, such reimbursement amounted to $808,446, which is subject to repayment, not to exceed the amount of offering expenses.
The Subsidiary has entered into a separate agreement with the Adviser for the management of the Subsidiary’s portfolio. The Adviser receives no compensation from the Subsidiary for its services under the agreement.
Pursuant to the investment advisory agreement, the Strategy may reimburse the Adviser for certain legal and accounting services provided to the Strategy by the Adviser. For the year ended October 31, 2012, the reimbursement for such services amounted to $76,745.
The Strategy compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Strategy. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $43,589 for the year ended October 31, 2012.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Strategy’s shares. The Distributor has advised the Strategy that it has retained front-end sales charges of $7,246 from the sale of Class A shares and received $7 and $10,130 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended October 31, 2012.
The Strategy may invest in the AllianceBernstein Fixed-Income Shares, Inc. – Government STIF Portfolio (“Government STIF Portfolio”), an open-end management investment company managed by the Adviser. The Government
44 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
STIF Portfolio is offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and is not available for direct purchase by members of the public. The Government STIF Portfolio pays no investment management fees but does bear its own expenses. A summary of the Strategy’s transactions in shares of the Government STIF Portfolio for the year ended October 31, 2012 is as follows:
Market Value October 31, 2011 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value October 31, 2012 (000) | Dividend Income (000) | ||||||||||||||
$ | 2,944 | $ | 160,398 | $ | 123,894 | $ | 39,448 | $ | 33 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2012 amounted to $504,351, of which $0 and $3,115, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Strategy has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Strategy pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”) at an annual rate of up to .30% of the Strategy’s average daily net assets attributable to Class A shares, 1% of the Strategy’s average daily net assets attributable to Class C shares, .50% of the Strategy’s average daily net assets attributable to Class R shares, .25% of the Strategy’s average daily net assets attributable to Class K shares and .25% of the Strategy’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class, Class I, and Class 2 shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Strategy’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Strategy in the amounts of $121,626, $13,837, $15,193 and $773,200 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Strategy in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Strategy’s shares.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 45 |
Notes to Consolidated Financial Statements
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2012 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 283,289,858 | $ | 264,634,045 | ||||
U.S. government securities | 118,014,364 | 156,331,046 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures, foreign currency, written options and swap transactions) are as follows:
Cost | $ | 402,897,805 | ||
|
| |||
Gross unrealized appreciation | $ | 12,208,805 | ||
Gross unrealized depreciation | (18,458,882 | ) | ||
|
| |||
Net unrealized depreciation | $ | (6,250,077 | ) | |
|
|
1. Derivative Financial Instruments
The Strategy may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Strategy, as well as the methods in which they may be used are:
• | Futures Contracts |
The Strategy may buy or sell futures contracts for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market or for investment purposes. The Strategy bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Strategy may purchase or sell futures contracts for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Strategy enters into a futures contract, the Strategy deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Pursuant to the contract, the Strategy agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Strategy as unrealized gains or losses. Risks may arise from the
46 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures contracts is generally less than privately negotiated futures contracts, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, provides a guarantee of performance. This guarantee is supported by a daily payment system (i.e., margin requirements). When the contract is closed, the Strategy records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures contracts subjects the Strategy to risk of loss in excess of the amounts shown on the consolidated statement of assets and liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Strategy to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended October 31, 2012, the Strategy held futures contracts for hedging and non-hedging purposes.
• | Forward Currency Exchange Contracts |
The Strategy may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Strategy. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended October 31, 2012, the Strategy held forward currency exchange contracts for hedging and non-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Strategy may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 47 |
Notes to Consolidated Financial Statements
things, the Strategy may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Strategy pays a premium whether or not the option is exercised. Additionally, the Strategy bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Strategy writes an option, the premium received by the Strategy is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Strategy on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Strategy has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Strategy. In writing an option, the Strategy bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Strategy could result in the Strategy selling or buying a security or currency at a price different from the current market value.
During the year ended October 31, 2012, the Strategy held purchased options for hedging and non-hedging purposes. During the year ended October 31, 2012, the Strategy held written options for hedging and non-hedging purposes.
For the year ended October 31, 2012, the Strategy had the following transactions in written options:
Number of Contracts | Premiums Received | |||||||
Options written outstanding as of 10/31/11 | 135 | $ | 1,239,997 | |||||
Options written | 3,045 | 1,810,453 | ||||||
Options expired | (646 | ) | (1,321,393 | ) | ||||
Options bought back | (1,357 | ) | (1,154,131 | ) | ||||
Options exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Options written outstanding as of 10/31/12 | 1,177 | $ | 574,926 | |||||
|
|
|
|
48 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
• | Swap Agreements |
The Strategy may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets and currencies. The Strategy may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Strategy in accordance with the terms of the respective swap agreements to provide value and recourse to the Strategy or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap agreement.
Risks may arise as a result of the failure of the counterparty to the swap contract to comply with the terms of the swap contract. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Strategy, and/or the termination value at the end of the contract. Therefore, the Strategy considers the creditworthiness of each counterparty to a swap contract in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Strategy and the counterparty and by the posting of collateral by the counterparty to the Strategy to cover the Strategy’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Strategy accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swap contracts on the consolidated statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the consolidated statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swap contracts. Upfront premiums paid or received are recognized as cost or proceeds on the consolidated statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the consolidated statement of operations. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of swap contracts on the consolidated statement of operations.
Interest Rate Swaps:
The Strategy is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Strategy holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 49 |
Notes to Consolidated Financial Statements
hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Strategy may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Strategy may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, a Strategy may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Strategy anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Strategy with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Strategy receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended October 31, 2012, the Strategy held interest rate swaps for non-hedging purposes.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swap agreements may be used to protect the net asset value, or NAV, of Strategy against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
During the year ended October 31, 2012, the Strategy held inflation (CPI) swaps for non-hedging purposes.
Total Return Swaps:
The Strategy may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Strategy is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Strategy will receive a payment from or make a payment to the counterparty.
50 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
During the year ended October 31, 2012, the Strategy held total return swaps for hedging and non-hedging purposes.
Documentation governing the Strategy’s OTC derivatives may contain provisions for early termination of such transaction in the event the net assets of the Strategy decline below specific levels set forth in the documentation (“net asset contingent features”). If these levels are triggered, the Strategy’s counterparty has the right to terminate such transaction and require the Strategy to pay or receive a settlement amount in connection with the terminated transaction. As of October 31, 2012, the Strategy had OTC derivatives with contingent features in net liability positions in the amount of $2,727,883. The fair value of assets pledged as collateral by the Strategy for such derivatives was $10,645,563 at October 31, 2012. If a trigger event had occurred at October 31, 2012, for those derivatives in a net liability position, an amount of $275,741 would be required to be posted by the Strategy.
At October 31, 2012, the Strategy had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Consolidated | Fair Value | Consolidated | Fair Value | ||||||||
Foreign exchange contracts |
Unrealized appreciation of forward currency exchange contracts | $ | 798,492 |
|
Unrealized depreciation of forward currency exchange contracts | $ | 778,252 |
| ||||
Commodity contracts | Receivable/Payable for variation margin on futures contracts | 429,368 | * | |||||||||
Interest rate contracts | Unrealized depreciation on interest rate swap contracts | 220,251 | ||||||||||
Interest rate contracts | Unrealized depreciation on inflation swap contracts | 5,724 | ||||||||||
Equity contracts | Receivable/Payable for variation margin on futures contracts | 238,006 | * | |||||||||
Equity contracts | Options written, at value | 180,306 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 51 |
Notes to Consolidated Financial Statements
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Consolidated | Fair Value | Consolidated | Fair Value | ||||||||
Equity contracts | Investments in securities, at value | $ | 577,231 | |||||||||
Equity contracts | Unrealized depreciation on total return swap agreements | $ | 2,121,762 | |||||||||
|
|
|
| |||||||||
Total | $ | 1,613,729 | $ | 3,735,663 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the consolidated statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of futures contracts as reported in the consolidated portfolio of investments. |
The effect of derivative instruments on the consolidated statement of operations for the year ended October 31, 2012:
Derivative Type | Location of Gain or (Loss) on | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts |
Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | $ | (86,730 | ) | $ | 472,414 |
| |||
Commodity contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | 151,846 | (20,633 | ) | ||||||
Commodity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 1,239,997 | (594,255 | ) | ||||||
Commodity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (124,276 | ) | (263,544 | ) |
52 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
Derivative Type | Location of Gain or (Loss) on | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | $ | (33,839 | ) | $ | (220,251 | ) | |||
Interest rate contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | – 0 | – | (5,724 | ) | |||||
Equity contracts | Net realized gain (loss) on futures contracts; Net change in unrealized appreciation/depreciation of futures contracts | (1,276,601 | ) | 238,006 | ||||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 461,046 | 394,620 | |||||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (1,432,108 | ) | (542,556 | ) | |||||
Equity contracts | Net realized gain (loss) on swap contracts; Net change in unrealized appreciation/depreciation of swap contracts | (49,591 | ) | (3,725,832 | ) | |||||
|
|
|
| |||||||
Total | $ | (1,150,256 | ) | $ | (4,267,755 | ) | ||||
|
|
|
|
The following table represents the volume of the Strategy’s derivative transactions during the year ended October 31, 2012:
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 59,623,985 | ||
Average principal amount of sale contracts | $ | 69,075,319 | ||
Futures Contracts: | ||||
Average original value of buy contracts | $ | 19,399,043 | ||
Average original value of sale contracts | $ | 22,913,671 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 53 |
Notes to Consolidated Financial Statements
Interest Rate Swap Contracts: | ||||
Average notional amount | $ | 3,830,000 | (a) | |
Inflation Swap Contracts: | ||||
Average notional amount | $ | 1,000,000 | (b) | |
Purchased Options Contracts: | ||||
Average monthly cost | $ | 1,017,314 | ||
Total Return Swap Contracts: | ||||
Average notional amount | $ | 113,146,557 |
(a) | Positions were open eight months during the year. |
(b) | Positions were open eight months during the year. |
2. Currency Transactions
The Strategy may invest in non-U.S. Dollar securities on a currency hedged or unhedged basis. The Strategy may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Strategy may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Strategy and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Strategy may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended 2011 | |||||||||||||||||
|
| |||||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 2,608,531 | 7,572,792 | $ | 28,567,301 | $ | 89,862,351 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 38,825 | 6,878 | 394,077 | 76,413 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (2,988,890 | ) | (1,335,679 | ) | (32,355,909 | ) | (14,766,683 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase (decrease) | (341,534 | ) | 6,243,991 | $ | (3,394,531 | ) | $ | 75,172,081 | ||||||||||||
| ||||||||||||||||||||
54 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
Shares | Amount | |||||||||||||||||||
Year Ended October 31, 2012 | Year Ended October 31, 2011 | Year Ended October 31, 2012 | Year Ended 2011 | |||||||||||||||||
Class C | ||||||||||||||||||||
Shares sold | 354,713 | 1,706,584 | $ | 3,879,024 | $ | 20,345,953 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 4,016 | 1,493 | 40,482 | 16,512 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (524,077 | ) | (139,497 | ) | (5,691,101 | ) | (1,576,503 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase (decrease) | (165,348 | ) | 1,568,580 | $ | (1,771,595 | ) | $ | 18,785,962 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Advisor Class | ||||||||||||||||||||
Shares sold | 4,543,903 | 5,812,158 | $ | 49,904,713 | $ | 69,445,733 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 31,201 | 1,871 | 317,317 | 20,804 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (2,780,605 | ) | (1,316,995 | ) | (30,660,702 | ) | (14,466,357 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 1,794,499 | 4,497,034 | $ | 19,561,328 | $ | 55,000,180 | ||||||||||||||
| ||||||||||||||||||||
Class R | ||||||||||||||||||||
Shares sold | 465 | 29 | $ | 5,131 | $ | 317 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | – 0 | – (a) | – 0 | – | 2 | – 0 | – | |||||||||||||
| ||||||||||||||||||||
Net increase | 465 | 29 | $ | 5,133 | $ | 317 | ||||||||||||||
| ||||||||||||||||||||
Class K | ||||||||||||||||||||
Shares sold | 104,007 | 10,805 | $ | 1,119,362 | $ | 126,879 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 261 | – 0 | – | 2,644 | – 0 | – | ||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (2,244 | ) | (184 | ) | (24,252 | ) | (1,956 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 102,024 | 10,621 | $ | 1,097,754 | $ | 124,923 | ||||||||||||||
| ||||||||||||||||||||
Class I | ||||||||||||||||||||
Shares sold | 208,844 | 1,430,460 | $ | 2,346,052 | $ | 16,124,567 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 14,751 | – 0 | – | 149,726 | – 0 | – | ||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (1,087 | ) | – 0 | – | (11,273 | ) | – 0 | – | ||||||||||||
| ||||||||||||||||||||
Net increase | 222,508 | 1,430,460 | $ | 2,484,505 | $ | 16,124,567 | ||||||||||||||
| ||||||||||||||||||||
Class 1 | ||||||||||||||||||||
Shares sold | 6,975,213 | 17,974,641 | $ | 76,358,201 | $ | 211,154,367 | ||||||||||||||
| ||||||||||||||||||||
Shares issued in reinvestment of dividends | 11,816 | 3,044 | 119,455 | 33,729 | ||||||||||||||||
| ||||||||||||||||||||
Shares redeemed | (3,912,630 | ) | (1,387,969 | ) | (42,845,273 | ) | (15,327,431 | ) | ||||||||||||
| ||||||||||||||||||||
Net increase | 3,074,399 | 16,589,716 | $ | 33,632,383 | $ | 195,860,665 | ||||||||||||||
| ||||||||||||||||||||
Class 2 | ||||||||||||||||||||
Shares sold | – 0 | – | 341,297 | – 0 | – | 4,000,000 | ||||||||||||||
| ||||||||||||||||||||
Shares redeemed | – 0 | – | (1,333,297 | ) | – 0 | – | (16,202,643 | ) | ||||||||||||
| ||||||||||||||||||||
Net decrease | – 0 | – | (992,000 | ) | $ | – 0 | – | $ | (12,202,643 | ) | ||||||||||
|
(a) | Share amount is less than one full share. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 55 |
Notes to Consolidated Financial Statements
NOTE F
Risks Involved in Investing in the Strategy
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Strategy’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Strategy’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Foreign Securities Risk—Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign currency exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies or of the U.S. government.
Currency Risk—This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Strategy’s investments or reduce the returns of the Strategy. For example, the value of the Strategy’s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Strategy’s investments denominated in foreign currencies, the Strategy’s positions in various foreign currencies may cause the Strategy to experience investment losses due to the changes in exchange rates and interest rates.
Commodity Risk—Investing in commodity-linked derivative instruments may subject the Strategy to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Derivatives Risk—The Strategy may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the consolidated statement of assets and liabilities.
56 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
Leverage Risk—When the Strategy borrows money or otherwise leverages its portfolio, it may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Strategy’s investments. The Strategy may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures contracts or by borrowing money. The use of derivative instruments by the Strategy, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Strategy than if the Strategy were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Strategy enters into contracts that contain a variety of indemnifications. The Strategy’s maximum exposure under these arrangements is unknown. However, the Strategy has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Strategy has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Strategy, participate in a $140 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Strategy did not utilize the Facility during the year ended October 31, 2012.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2012 and October 31, 2011 were as follows:
2012 | 2011 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 2,756,490 | $ | 561,662 | ||||
|
|
|
| |||||
Total taxable distributions paid | $ | 2,756,490 | $ | 561,662 | ||||
|
|
|
|
As of October 31, 2012, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 8,018,481 | ||
Accumulated capital and other losses | (15,654,475 | )(a) | ||
Unrealized appreciation/(depreciation) | (6,451,558 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (14,087,552 | ) | |
|
|
(a) | On October 31, 2012, the Strategy had a net capital loss carryforward of $15,654,475. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 57 |
Notes to Consolidated Financial Statements
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and passive foreign investment companies (PFICs), the tax treatment of Treasury inflation-protected securities, the realization for tax purposes of gains/losses on certain derivative instruments, and the tax treatment of earnings from the Subsidiary. |
For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-enactment capital losses must be utilized prior to the pre-enactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation.
As of October 31, 2012, the Strategy had a net capital loss carryforward of $15,654,475 which will expire as follows:
Short-Term | Long-Term | Expiration | ||||||||
$ | 8,227 | n/a | 2018 | |||||||
8,373,586 | n/a | 2019 | ||||||||
4,103,434 | $ | 3,169,228 | No expiration |
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps and passive foreign investment companies (PFICs), reclassifications of foreign currency and foreign capital gains tax, the book/tax differences associated with the treatment of earnings from the Subsidiary, and the tax treatment of Treasury inflation-protected securities resulted in a net increase in undistributed net investment income, a net increase in accumulated net realized loss on investment and foreign currency transactions, and a net increase in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I
Recent Accounting Pronouncement
In December 2011, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) related to disclosures about offsetting assets and liabilities in financial statements. The amendments in this update require an entity to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective during interim or annual reporting periods beginning on or after January 1, 2013. At this time, management is evaluating the implication of this ASU and its impact on the financial statements has not been determined.
58 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Notes to Consolidated Financial Statements
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Strategy’s financial statements through this date.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 59 |
Notes to Consolidated Financial Statements
CONSOLIDATED FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||
Year Ended October 31, | March 8, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 11.05 | $ 11.25 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .11 | .16 | .04 | |||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .25 | (.01 | ) | 1.21 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .36 | .15 | 1.25 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.08 | ) | (.35 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.33 | $ 11.05 | $ 11.25 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.36 | % | 1.32 | % | 12.50 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $67,989 | $70,081 | $1,123 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.05 | % | 1.05 | % | 1.05 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.28 | % | 1.61 | % | 7.68 | %(f)(g) | ||||||
Net investment income(c) | 1.02 | % | 1.44 | % | .80 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
60 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||
Year Ended October 31, | March 8, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ | 10.93 | $ | 11.19 | $ | 10.00 | ||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .03 | .08 | .04 | |||||||||
Net realized and unrealized gain (loss) on | .25 | (.01 | ) | 1.15 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .28 | .07 | 1.19 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.03 | ) | (.33 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ | 11.18 | $ | 10.93 | $ | 11.19 | ||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 2.58 | % | .61 | % | 11.90 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $ | 15,974 | $ | 17,414 | $280 | |||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.75 | % | 1.75 | % | 1.75 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.99 | % | 2.31 | % | 11.21 | %(f)(g) | ||||||
Net investment income(c) | .32 | % | .73 | % | .65 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 61 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||
Year Ended October 31, | March 8, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 11.08 | $ 11.26 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .15 | .19 | .08 | |||||||||
Net realized and unrealized gain (loss) on | .25 | (.01 | ) | 1.18 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .40 | .18 | 1.26 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.11 | ) | (.36 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.37 | $ 11.08 | $ 11.26 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.69 | % | 1.55 | % | 12.60 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $72,529 | $50,795 | $963 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .75 | % | .75 | % | .75 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .99 | % | 1.29 | % | 8.89 | %(f)(g) | ||||||
Net investment income(c) | 1.33 | % | 1.69 | % | 1.46 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
62 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||
Year Ended October 31, | March 8, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 11.02 | $ 11.23 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .09 | .16 | .10 | |||||||||
Net realized and unrealized gain (loss) on | .26 | (.04 | ) | 1.13 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .35 | .12 | 1.23 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.05 | ) | (.33 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.32 | $ 11.02 | $ 11.23 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.20 | % | 1.03 | % | 12.30 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $17 | $11 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.25 | % | 1.25 | % | 1.25 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.64 | % | 2.87 | % | 8.66 | %(f)(g) | ||||||
Net investment income(c) | .82 | % | 1.39 | % | 1.50 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 63 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||
Year Ended October 31, | March 8, 2010 | |||||||||||
2012 | 2011 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 11.05 | $ 11.25 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .10 | .15 | .12 | |||||||||
Net realized and unrealized gain on | .27 | – 0 | – | 1.13 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .37 | .15 | 1.25 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.10 | ) | (.35 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.32 | $ 11.05 | $ 11.25 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.43 | % | 1.33 | % | 12.50 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $1,286 | $128 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.00 | % | 1.00 | % | 1.00 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.35 | % | 1.91 | % | 8.39 | %(f)(g) | ||||||
Net investment income(c) | .89 | % | 1.38 | % | 1.76 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
64 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||
Year Ended October 31, | March 8, 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 11.07 | $ 11.27 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .14 | .15 | .13 | |||||||||
Net realized and unrealized gain on | .26 | .02 | (h) | 1.14 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .40 | .17 | 1.27 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.11 | ) | (.37 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.36 | $ 11.07 | $ 11.27 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.69 | % | 1.53 | % | 12.70 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $18,790 | $15,850 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .75 | % | .75 | % | .75 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .98 | % | 1.38 | % | 8.11 | %(f)(g) | ||||||
Net investment income(c) | 1.32 | % | 1.42 | % | 1.99 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 65 |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||
Year Ended October 31, | March 8, 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 11.01 | $ 11.25 | $ 10.00 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .12 | .15 | .12 | |||||||||
Net realized and unrealized gain (loss) on | .25 | (.01 | ) | 1.13 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .37 | .14 | 1.25 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.09 | ) | (.38 | ) | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 11.29 | $ 11.01 | $ 11.25 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.47 | % | 1.25 | % | 12.50 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $221,971 | $182,720 | $11 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | 1.00 | % | 1.00 | % | 1.00 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | 1.21 | % | 1.47 | % | 8.39 | %(f)(g) | ||||||
Net investment income(c) | 1.07 | % | 1.40 | % | 1.78 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
See footnote summary on page 67.
66 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Consolidated Financial Highlights
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||
Year Ended October 31, | March 8, 2010(a) to October 31, | |||||||||||
2012 | 2011 | 2010 | ||||||||||
|
|
|
|
|
| |||||||
Net asset value, beginning of period | $ 11.07 | $ 11.27 | $ 10.00 | |||||||||
|
|
|
|
|
| |||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .15 | .14 | .13 | |||||||||
Net realized and unrealized gain on | .26 | .03 | (h) | 1.14 | ||||||||
Contributions from Adviser | – 0 | – | – 0 | – | .00 | (d) | ||||||
|
|
|
|
|
| |||||||
Net increase in net asset value from operations | .41 | .17 | 1.27 | |||||||||
|
|
|
|
|
| |||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | – 0 | – | (.37 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Net asset value, end of period | $ 11.48 | $ 11.07 | $ 11.27 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | 3.70 | % | 1.50 | % | 12.70 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $11 | $11 | $11,187 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements | .75 | % | .75 | % | .75 | %(f)(g) | ||||||
Expenses, before waivers/reimbursements | .96 | % | 3.72 | % | 8.14 | %(f)(g) | ||||||
Net investment income(c) | 1.32 | % | 1.19 | % | 2.01 | %(f)(g) | ||||||
Portfolio turnover rate | 118 | % | 120 | % | 42 | % |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees and expenses waived/reimbursed by the Adviser. |
(d) | Amount is less than $.005. |
(e) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(f) | The ratio includes expenses attributable to costs of proxy solicitation. |
(g) | Annualized. |
(h) | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Strategy’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
See notes to consolidated financial statements.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 67 |
Consolidated Financial Highlights
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of AllianceBernstein Bond Fund, Inc.
and Shareholders of the AllianceBernstein Real Asset Strategy Portfolio
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated portfolio of investments, of AllianceBernstein Real Asset Strategy Portfolio (one of the portfolios constituting AllianceBernstein Bond Fund, Inc.) (the “Strategy”), as of October 31, 2012, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended and the consolidated financial highlights for the two years in the period then ended and the period March 8, 2010 (commencement of operations) through October 31, 2010. These financial statements and financial highlights are the responsibility of the Strategy’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Strategy’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Strategy’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2012 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of AllianceBernstein Real Asset Strategy Portfolio of AllianceBernstein Bond Fund, Inc. at October 31, 2012, the consolidated results of their operations for the year then ended, the consolidated changes in their net assets for each of the two years in the period then ended and the consolidated financial highlights for each of the two years in the period then ended and the period March 8, 2010 (commencement of operations) through October 31, 2010, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 27, 2012
68 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Report of Independent Registered Public Accounting Firm
2012 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Strategy during the taxable year ended October 31, 2012. For corporate shareholders, 15.87% of dividends paid qualify for the dividends received deduction. For foreign shareholders, 12.15% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
For the taxable year ended October 31, 2012, the Strategy designates $3,397,898 as the maximum amount that may be considered qualified dividend income for individual shareholders.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2013.
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 69 |
2012 Federal Tax Information
BOARD OF DIRECTORS
William H. Foulk, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Garry L. Moody(1) Marshall C. Turner, Jr.(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Vincent L. Childers(2), Vice President Jonathan E. Ruff(2), Vice President | Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company One Lincoln Street Boston, MA 02111
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. Mr. Foulk is the sole member of the Fair Value Pricing Committee. |
(2) | The day-to-day management of, and investment decisions for, the Strategy’s portfolio are made by the Adviser’s Real Asset Strategy Team. Messrs. Vincent L. Childers and Jonathan E. Ruff are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
70 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Board of Directors
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER RELEVANT QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, + 1345 Avenue of the Americas NewYork, New York 10105 52 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AllianceBernstein Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 101 | None |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 71 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER RELEVANT QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS | ||||||||
William H. Foulk, Jr., ++, # Chairman of the Board 80 (1998) | Investment Adviser and an Independent Consultant since prior to 2007. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AllianceBernstein Funds since 1983 and has been Chairman of the AllianceBernstein Funds and of the Independent Directors Committee of such Funds since 2003. He is also active in a number of mutual fund organizations and committees. | 101 | None | |||||
John H. Dobkin, # 70 (1998) | Independent Consultant since prior to 2007. Formerly, President of Save Venice, Inc. (preservation organization) from 2001-2002, Senior Advisor from June 1999 – June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989 – May 1999. Previously, Director of the National Academy of Design. He has served as a director or trustee of various AllianceBernstein Funds since 1992, and as Chairman of the Audit Committees of a number of such Funds from 2001-2008. | 101 | None |
72 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER RELEVANT QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey, # 68 (2005) | Private Investor since prior to 2007. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AllianceBernstein Funds since 2005 and is a director of two other registered investment companies (and Chairman of one of them). | 101 | Asia Pacific Fund, Inc. and The Merger Fund since prior to 2007 and Prospect Acquisition Corp. (financial services) from 2007 until 2009 | |||||
D. James Guzy, # 76 (2005) | Chairman of the Board of PLX Technology (semi-conductors) and of SRC Computers Inc., with which he has been associated since prior to 2007. He was a director of Intel Corporation (semi-conductors) from 1969 until 2008, and served as Chairman of the Finance Committee of such company for several years until May 2008. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1982. | 101 | Cirrus Logic Corporation (semi-conductors) and PLX Technology (semi-conductors) since prior to 2007 and Intel Corporation (semi-conductors) since prior to 2007 until 2008 |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 73 |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, # 64 (2006) | Professorial Lecturer at the Johns Hopkins School of Advanced International Studies since 2008. Formerly, U.S. Executive Director of the International Monetary Fund (December 2002 – May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AllianceBernstein Funds since 2006. | 101 | None | |||||
Garry L. Moody, # 60 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995); and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services. He is also a member of the Governing Council of the Independent Directors Council (IDC), an organization of independent directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committee, of the AllianceBernstein Funds since 2008. | 101 | None |
74 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Management of the Fund
NAME, ADDRESS* and AGE (YEAR FIRST ELECTED**) | PRINCIPAL QUALIFICATIONS*** | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER DIRECTORSHIPS HELD BY DIRECTOR IN THE PAST FIVE YEARS | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Marshall C. Turner, Jr., # 71 (2005) | Private Investor since prior to 2007. Interim CEO of MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) from November 2008 until March 2009. He was Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing), 2003-2005, and President and CEO, 2005-2006, after the company was acquired and renamed Toppan Photomasks, Inc. He has extensive experience in venture capital investing including prior service as general partner of three institutional venture capital partnerships, and serves on the boards of a number of education and science-related non-profit organizations. He has served as a director or trustee of one or more of the AllianceBernstein Funds since 1992. | 101 | Xilinx, Inc. (programmable logic semi-conductors) and MEMC Electronic Materials, Inc. (semi-conductor and solar cell substrates) since prior to 2007 | |||||
Earl D. Weiner, # 73 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and member of ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AllianceBernstein Funds since 2007 and is Chairman of the Governance and Nominating Committees of the Funds. | 101 | None |
* | The address for each of the Strategy’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Philip L. Kirstein, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Strategy’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Strategy. |
+ | Mr. Keith is an “interested person” of the Strategy as defined in the “40 Act”, due to his position as a Senior Vice President of the Adviser. |
++ | Member of the Fair Value Pricing Committee. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 75 |
Management of the Fund
Officer Information
Certain information concerning the Strategy’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 52 | President and Chief Executive Officer | See biography above. | ||
Philip L. Kirstein 67 | Senior Vice President and Independent Compliance Officer | Senior Vice President and Independent Compliance Officer of the AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to March 2003. | ||
Vincent L. Childers 36 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Jonathan E. Ruff 42 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2007. | ||
Emilie D. Wrapp 57 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2007. | ||
Joseph J. Mantineo 53 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc, (“ABIS”),** with which he has been associated since prior to 2007. | ||
Phyllis J. Clarke 51 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2007. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Strategy’s Directors and Officers and is available without charge upon request. Contact your financial representative or AllianceBernstein at 1-800-227-4618, or visit www.alliancebernstein.com, for a free prospectus or SAI. |
76 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Management of the Fund
THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
SUMMARY OF SENIOR OFFICER’S EVALUATION OF INVESTMENT ADVISORY AGREEMENT1
The following is a summary of the evaluation of the Investment Advisory Agreement between AllianceBernstein L.P. (the “Adviser”) and The AllianceBernstein Bond Fund, Inc. (the “Fund”), in respect of AllianceBernstein Real Asset Strategy (the “Strategy”).2 The evaluation of the investment Advisory Agreement was prepared by Philip L. Kirstein, the Senior Officer of the Fund for the Directors of the Fund, as required by the August 2004 agreement between the Adviser and the New York State Attorney General (the “NYAG”). The Senior Officer’s evaluation of the Investment Advisory Agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the “40 Act”) and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees proposed to be paid by the Strategy which was provided to the Directors in connection with their review of the proposed initial approval of the Investment Advisory Agreement. The Senior Officer’s evaluation considered the following factors:
1. | Advisory fees charged to institutional and other clients of the Adviser for like services; |
2. | Advisory fees charged by other mutual fund companies for like services; |
3. | Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit; |
4. | Profit margins of the Adviser and its affiliates from supplying such services; |
5. | Possible economies of scale as the Strategy grows larger; and |
6. | Nature and quality of the Adviser’s services including the performance of the Strategy. |
These factors, with the exception of the first factor, are generally referred to as the “Gartenberg factors,” which were articulated by the United States Court of Appeals for the Second Circuit in 1982. Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (2d Cir. 1982). On March 30, 2010, the Supreme Court held the Gartenberg decision was correct in its basic formulation of what §36(b) requires: to face liability under §36(b), “an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable
1 | The Senior Officer’s fee evaluation was completed on October 25, 2012 and presented to the Board of Directors on November 6-8, 2012. |
2 | Future references to the Fund or the Strategy do not include “AllianceBernstein.” |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 77 |
relationship to the services rendered and could not have been the product of arm’s length bargaining.” Jones v. Harris Associates L.P., 130 S. Ct. 1418 (2010). In Jones, the Court stated the Gartenberg approach fully incorporates the correct understanding of fiduciary duty within the context of section 36(b) and noted with approval that “Gartenberg insists that all relevant circumstances be taken into account” and “uses the range of fees that might result from arm’s length bargaining as the benchmark for reviewing challenged fees.”3
ADVISORY FEES, NET ASSETS, & EXPENSE RATIOS
The Adviser proposed that the Strategy pays the advisory fee set forth below for receiving the services to be provided pursuant to the Investment Advisory Agreement.
Strategy | Net Assets 09/30/12 ($MM) | Advisory Fee Schedule Based on the Average Daily Net Assets of the Portfolio | ||
Real Asset Strategy | $399.0 | 75 bp (flat fee) |
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Strategy. During the Strategy’s most recently completed fiscal year, the Adviser was entitled to receive $72,866 (0.01% of the Strategy’s average daily net assets) for such services, but waived the amount in its entirety.
The Adviser agreed to waive that portion of its advisory fees and/or reimburse the Strategy for that portion of the Strategy’s total operating expenses to the degree necessary to limit the Strategy’s expense ratios to the amounts set forth below for the Strategy’s current fiscal year. The waiver is terminable by the Adviser prior to the Strategy’s new Prospectus date upon at least 60 days written notice. In addition, set forth below are the Strategy’s gross expense ratios, annualized for the most recent semi-annual period:
Strategy | Expense Cap Pursuant to Expense Limitation Undertaking | Gross Expense Ratio4 | Fiscal Year End | |||||||||||
Real Asset Strategy | Advisor Class A Class C Class R Class K Class I Class 1 Class 2 |
| 0.75% 1.05% 1.75 1.25 1.00 0.75 1.00 0.75 | % % % % % % |
| 1.00 1.29 2.00 1.60 1.38 1.03 1.23 0.98 | % % % % % % % % | | October 31 (ratio as of | |
3 | Jones v. Harris at 1427. |
4 | Annualized. |
78 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
I. | ADVISORY FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS |
The advisory fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Strategy that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes–Oxley Act of 2002, and coordinating with and monitoring the Strategy’s third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Strategy are more costly than those for institutional client assets due to the greater complexities and time required for investment companies, although as previously noted, the Adviser is entitled to be reimbursed for providing some of these services. Also, retail mutual funds managed by the Adviser are widely held and accordingly, servicing the Strategy’s investors is more time consuming and labor intensive compared to servicing institutional clients since the Adviser needs to communicate with a more extensive network of financial intermediaries and shareholders. The Adviser also believes that it incurs substantial entrepreneurial risk when offering a new mutual fund since establishing a new mutual fund requires a large upfront investment and it may take a long time for the fund to achieve profitability since the fund must be priced to scale from inception in order to be competitive and assets are acquired one account at a time. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly if the Strategy is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although arguably still not equal to those related to the mutual fund industry.
Notwithstanding the Adviser’s view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, the Supreme Court has indicated consideration should be given to the advisory fees charged to institutional accounts with a similar investment style as the Strategy.5 In addition to the AllianceBernstein
5 | The Supreme Court stated that “courts may give such comparisons the weight that they merit in light of the similarities and differences between the services that the clients in question require, but the courts must be wary of inapt comparisons.” Among the significant differences the Supreme Court noted that may exist between services provided to mutual funds and institutional accounts are “higher marketing costs.” Jones v. Harris at 1428. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 79 |
Institutional fee schedule, set forth below is what would have been the effective advisory fee for the Strategy had the AllianceBernstein Institutional fee schedule been applicable to the Strategy versus the Strategy’s advisory fees based on September 30, 2012 net assets:6
Strategy | Net Assets 09/30/12 ($MM) | AllianceBernstein (“AB”) Fee Schedule | Effective AB Inst. Adv. Fee | Strategy Advisory Fee | ||||||||
Real Asset Strategy | $399.0 | Real Asset Strategy Schedule 75 bp on 1st $150 million 60 bp on next $150 million 50 bp on the balance Minimum Acct Size: $150 million | 0.632% | 0.750% |
The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fee for the sub-advisory relationship that has a somewhat similar investment style as the Strategy. Also shown are the Strategy’s advisory fee and what would have been the effective advisory fee of the Strategy had the fee schedule of the sub-advisory relationship been applicable to the Strategy based on September 30, 2012 net assets:
Strategy | Sub-advised Fund | Sub-advised Fund Fee Schedule | Sub-Advised Management | Portfolio Advisory Fee | ||||||||
Real Asset Strategy | Client #1 | 0.35% on first $250 million 0.25% on first $250 million 0.23% thereafter | 0.313% | 0.750% |
It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Strategy by the Adviser.
While it appears that the sub-advisory relationship is paying a lower fee than investment companies managed by the Adviser, it is difficult to evaluate the relevance of such fees due to the differences in the services provided, risks involved and other competitive factors between the investment companies and the sub-advisory relationship. There could be various business reasons why an investment adviser would be willing to provide a sub-advised relationship investment related services at a different fee level than an investment company it is sponsoring where the investment adviser is provided all the services, not just investment services, generally required by a registered investment company
6 | The Adviser has indicated that with respect to institutional accounts with assets greater than $300 million, it will negotiate a fee schedule. Discounts that are negotiated vary based upon each client relationship. |
80 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
II. | MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. |
Lipper, Inc. (“Lipper”), an analytical service that is not affiliated with the Adviser, compared the fees charged to the Strategy with fees charged to other investment companies for similar services offered by other investment advisers.7 Lipper’s analysis included the comparison of the Strategy’s contractual management fee, estimated at the approximate current asset level of the Strategy, to the median of the Strategy’s Lipper Expense Group (“EG”)8 and the Strategy’s contractual management fee ranking.9
Lipper describes an EG as a representative sample of comparable funds. Lipper’s standard methodology for screening funds to be included in an EG entails the consideration of several fund criteria, including fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, expense components and attributes. An EG will typically consist of seven to twenty funds.
Strategy | Contractual Management Fee (%) | Lipper Expense Median (%) | Rank | |||||||||
Real Asset Strategy | 0.750 | 0.950 | 2/11 |
Lipper also compared the Strategy’s total expense ratio to the medians of the Strategy’s EG and Lipper Expense Universe (“EU”). The EU10 is a broader group compared to the EG, consisting of all funds that have the same investment classification/objective and load type as the subject Strategy.
Strategy | Expense Ratio (%) | Lipper Exp. Group | Lipper Group Rank | Lipper Exp. Universe Median (%) | Lipper Rank | |||||||||||||||
Real Asset Strategy | 1.050 | 1.401 | 2/11 | 1.320 | 8/33 |
7 | The Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since “these comparisons are problematic because these fees, like those challenged, may not be the product of negotiations conducted at arm’s length.” Jones v. Harris at 1429. |
8 | Lipper does not consider average account size when constructing EGs. Funds with relatively small average account sizes tend to have higher transfer agent expense ratio than comparable sized funds that have relatively large average account sizes. There are limitations to Lipper expense category data because different funds categorize expenses differently. |
9 | The contractual management fee is calculated by Lipper using the Strategy’s contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Strategy, rounded up to the next $25 million. Lipper’s total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of “1” would mean that Strategy had the lowest effective fee rate in the Lipper peer group. |
10 | Except for asset (size) comparability, Lipper uses the same criteria for selecting an EG when selecting an EU. Unlike the EG, the EU allows for the same adviser to be represented by more than just one fund. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 81 |
Based on this analysis, the Strategy has equally favorable rankings on a total expense ratio basis and on a contractual management fee basis.
III. | COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. |
The Adviser utilizes two profitability reporting systems, which operate independently but are aligned with each other, to estimate the Adviser’s profitability in connection with investment advisory services provided to the Strategy. The Senior Officer has retained a consultant to provide independent advice regarding the alignment of the two profitability systems as well as the methodologies and allocations utilized by both profitability systems. See Section IV for additional discussion.
IV. | PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. |
The profitability information for the Strategy, prepared by the Adviser for the Board of Directors, was reviewed by the Senior Officer and the independent consultant. The Adviser’s profitability from providing investment advisory services to the Strategy in 2011 was negative.
In addition to the Adviser’s direct profits from managing the Strategy, certain of the Adviser’s affiliates have business relationships with the Strategy and may earn a profit from providing other services to the Strategy. The courts have referred to this type of business opportunity as “fall-out benefits” to the Adviser and indicated that such benefits should be factored into the evaluation of the total relationship between the Strategy and the Adviser. Neither case law nor common business practice precludes the Adviser’s affiliates from earning a reasonable profit on this type of relationship provided the affiliates’ charges and services are competitive. These affiliates provide transfer agent, distribution and brokerage related services to the Strategy and receive transfer agent fees, front-end sales loads, Rule 12b-1 payments, contingent deferred sales charges (“CDSC”) and brokerage commissions. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. During the Strategy’s most recently completed fiscal year, ABI received from the Portfolio $46,956, $404,775 and $2,017 in front-end sales charges, Rule 12b-1 and CDSC fees, respectively.
AllianceBernstein Investments, Inc. (“ABI”), an affiliate of the Adviser, is the Strategy’s principal underwriter. ABI and the Adviser have disclosed in the Strategy’s prospectus that they may make revenue sharing payments from their own resources, in addition to revenues derived from sales loads and Rule 12b-1 fees, to firms that sell shares of the Strategy. In 2011, ABI paid approximately 0.04%
82 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
of the average monthly assets of the AllianceBernstein Mutual Funds or approximately $17 million for distribution services and educational support (revenue sharing payments).
Fees and reimbursements for out of pocket expenses charged by AllianceBernstein Investor Services, Inc. (“ABIS”), the affiliated transfer agent for the Strategy, are charged on a per account basis, based on the level of service provided and the class of share held by the account. ABIS also receives a fee per shareholder sub-account for each account maintained by an intermediary on an omnibus basis. During the Strategy’s most recently completed fiscal year, ABIS received $29,579 in fees from the Strategy.
The Strategy effected brokerage transactions through the Adviser’s affiliate, Sanford C. Bernstein & Co., LLC (“SCB & Co.”) and its U.K. affiliate, Sanford C. Bernstein Limited (“SCB Ltd.”), collectively “SCB,” and paid commissions for such transactions during the Strategy’s most recently completed fiscal year. The Adviser represented that SCB’s profitability from business conducted with the Strategy is comparable to the profitability of SCB’s dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks (“ECNs”) derived from trading for its clients, including the Strategy. These credits and charges are not being passed onto to any SCB client. The Adviser also receives certain soft dollar benefits from brokers that execute agency trades for its clients. These soft dollar benefits reduce the Adviser’s research expense and increase its profitability.
V. | POSSIBLE ECONOMIES OF SCALE |
The Adviser has indicated that economies of scale are being shared with shareholders through pricing to scale, breakpoints, fee reductions/waivers and enhancement to services.
An independent consultant, retained by the Senior Officer, provided the Board of Directors information on the Adviser’s firm-wide average costs from 2005 through 2011 and the potential economies of scale. The independent consultant noted that from 2005 through 2007 the Adviser experienced significant growth in assets under management (“AUM”). During this period, operating expenses increased, in part to keep up with growth, and in part reflecting market returns. However, from 2008 through the first quarter of 2009, AUM rapidly and significantly decreased due to declines in market value and client withdrawals. When AUM rapidly decreased, some operating expenses categories, including base compensation and office space, adjusted more slowly during this period, resulting in an increase in average costs. Since 2009, AUM has experienced less significant changes. The independent consultant noted that changes in operating expenses reflect changes in business composition and business practices in response to changes in financial markets. Finally, the independent consultant concluded that the increase in average cost and the decline in net operating margin across the
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 83 |
Adviser since late 2008 are inconsistent with the view that there are currently reductions in average costs due to economies of scale that can be shared with the AllianceBernstein Mutual Funds managed by the Adviser through lower fees.
Previously in February 2008, the independent consultant provided the Board of Directors an update of the Deli11 study on advisory fees and various fund characteristics.12 The independent consultant first reiterated the results of his previous two dimensional comparison analysis (fund size and family size) with the Board of Directors.13 The independent consultant then discussed the results of the regression model that was utilized to study the effects of various factors on advisory fees. The regression model output indicated that the bulk of the variation in fees predicted were explained by various factors, but substantially by fund AUM, family AUM, index fund indicator and investment style. The independent consultant also compared the advisory fees of the AllianceBernstein Mutual Funds to similar funds managed by 19 other large asset managers, regardless of the fund size and each Adviser’s proportion of mutual fund assets to non-mutual fund assets.
VI. | NATURE AND QUALITY OF THE ADVISER’S SERVICES, INCLUDING THE PERFORMANCE OF THE FUND |
With assets under management of approximately $419 billion as of September 30, 2012, the Adviser has the investment experience to manage and provide non-investment services (described in Section I) to the Strategy.
The information below shows the 1 year performance return and rankings of the Strategy14 relative to its Lipper Performance Group (“PG”) and Lipper Performance Universe (“PU”)15 for the periods ended July 31, 2012.16
11 | The Deli study, originally published in 2002 based on 1997 data and updated for the February 2008 Presentation, may be of diminished value due to the age of the data used in the presentation and the changes experienced in the industry over the last four years. |
12 | As mentioned previously, the Supreme Court cautioned against accepting mutual fund fee comparisons without careful scrutiny since the fees may not be the product of negotiations conducted at arm’s length. See Jones V. Harris at 1429. |
13 | The two dimensional analysis showed patterns of lower advisory fees for funds with larger asset sizes and funds from larger family sizes compared to funds with smaller asset sizes and funds from smaller family sizes, which according to the independent consultant is indicative of a sharing of economies of scale and scope. However, in less liquid and active markets, such is not the case, as the empirical analysis showed potential for diseconomies of scale in those markets. The empirical analysis also showed diminishing economies of scale and scope as funds surpassed a certain high level of assets. |
14 | The performance returns and rankings are for the Class A shares of the Strategy. The performance returns of the Strategy were provided Lipper. |
15 | The Strategy’s PG is identical to the Strategy’s EG. The Strategy’s PU is not identical to the Strategy’s EU as the criteria for including/excluding a strategy in/from a PU are somewhat different from that of an EU. |
16 | The current Lipper investment classification/objective dictates the PG and PU throughout the life of the Strategy even if the Strategy may have had a different investment classification/objective at different points in time. |
84 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
Strategy | Strategy Return (%) | PG Median (%) | PU Median (%) | PG Rank | PU Rank | |||||||||||
Real Asset Strategy 1 year | -7.28 | -2.71 | -1.56 | 7/11 | 54/67 |
Set forth below are the 1 year and since inception net performance returns of the Strategy (in bold)17 versus its benchmark.18 Strategy and benchmark volatility and reward-to-variability ratio (“Sharpe Ratio”) information is also shown.19
Periods Ending July 31, 2012 Annualized Performance | ||||||||||||||||||||
Since Inception | Annualized | Risk Period | ||||||||||||||||||
1 Year (%) | Volatility (%) | Sharpe (%) | ||||||||||||||||||
Real Asset Strategy | -7.28 | 5.81 | 22.25 | -0.22 | 1 | |||||||||||||||
MSCI AC World Commodity Producers Index | -17.82 | -1.49 | 28.90 | -0.49 | 1 | |||||||||||||||
Inception Date: March 8, 2010 |
CONCLUSION:
Based on the factors discussed above the Senior Officer’s conclusion is that the proposed advisory fee for the Strategy is reasonable and within the range of what would have been negotiated at arm’s-length in light of all the surrounding circumstances. This conclusion in respect of the Strategy is based on an evaluation of all of these factors and no single factor was dispositive.
Dated: December 3, 2012
17 | The performance returns and risk measures shown in the table are for the Class A shares of the Strategy. |
18 | The Adviser provided Strategy and benchmark performance return information for the periods through July 31, 2012. |
19 | Strategy and benchmark volatility and Sharpe Ratio information was obtained through Lipper LANA, a database maintained by Lipper. Volatility is a statistical measure of the tendency of a market price or yield to vary over time. A Sharpe Ratio is a risk adjusted measure of return that divides a fund’s return in excess of the riskless return by the fund’s standard deviation. A strategy with a greater volatility would be viewed as more risky than a strategy with equivalent performance but lower volatility; for that reason, a greater return would be demanded for the more risky fund. A strategy with a higher Sharpe Ratio would be viewed as better performing than a strategy with a lower Sharpe Ratio. |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 85 |
THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS
ALLIANCEBERNSTEIN FAMILY OF FUNDS
Wealth Strategies
Balanced Wealth Strategy
Conservative Wealth Strategy
Wealth Appreciation Strategy
Tax-Managed Balanced Wealth Strategy
Tax-Managed Conservative Wealth Strategy
Tax-Managed Wealth Appreciation Strategy
Asset Allocation/Multi-Asset Funds
Dynamic All Market Fund
Emerging Markets Multi-Asset Portfolio
International Portfolio
Tax-Managed International Portfolio
Growth Funds
Domestic
Discovery Growth Fund**
Growth Fund
Large Cap Growth Fund
Select US Equity Portfolio
Small Cap Growth Portfolio
U.S. Strategic Research Portfolio
Global & International
Global Thematic Growth Fund
International Discovery Equity Portfolio
International Focus 40 Portfolio
International Growth Fund
Value Funds
Domestic
Core Opportunities Fund
Discovery Value Fund**
Equity Income Fund
Growth & Income Fund
Value Fund
Global & International
Global Real Estate Investment Fund
Global Value Fund
International Value Fund
Taxable Bond Funds
Bond Inflation Strategy
Global Bond Fund
High Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
Municipal Bond Funds
Arizona Portfolio California Portfolio High Income Portfolio Massachusetts Portfolio Michigan Portfolio Minnesota Portfolio Municipal Bond Inflation Strategy | National Portfolio New Jersey Portfolio New York Portfolio Ohio Portfolio Pennsylvania Portfolio Virginia Portfolio |
Intermediate Municipal Bond Funds
Intermediate California Portfolio
Intermediate Diversified Portfolio
Intermediate New York Portfolio
Closed-End Funds
Alliance California Municipal Income Fund
Alliance New York Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein Income Fund
AllianceBernstein National Municipal Income Fund
Alternatives
Global Risk Allocation Fund**
Market Neutral Strategy-Global
Market Neutral Strategy-U.S.
Real Asset Strategy
Unconstrained Bond Fund
Retirement Strategies
2000 Retirement Strategy | 2020 Retirement Strategy | 2040 Retirement Strategy | ||
2005 Retirement Strategy | 2025 Retirement Strategy | 2045 Retirement Strategy | ||
2010 Retirement Strategy | 2030 Retirement Strategy | 2050 Retirement Strategy | ||
2015 Retirement Strategy | 2035 Retirement Strategy | 2055 Retirement Strategy |
We also offer Exchange Reserves,* which serves as the money market fund exchange vehicle for the AllianceBernstein mutual funds.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.alliancebernstein.com or contact your AllianceBernstein investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
* | An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. |
** | Prior to October 8, 2012, Global Risk Allocation Fund was named Balanced Shares. Prior to November 1, 2012, Discovery Growth Fund was named Small/Mid Cap Growth Fund and Discovery Value Fund was named Small/Mid Cap Value Fund. |
86 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
AllianceBernstein Family of Funds
NOTES
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 87 |
NOTES
88 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
NOTES
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 89 |
NOTES
90 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
NOTES
ALLIANCEBERNSTEIN REAL ASSET STRATEGY • | 91 |
NOTES
92 | • ALLIANCEBERNSTEIN REAL ASSET STRATEGY |
ALLIANCEBERNSTEIN REAL ASSET STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800.221.5672
RAS-0151-1012 | ![]() |
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the registrant’s code of ethics is filed herewith as Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant’s Board of Directors has determined that independent directors Garry L. Moody and William H. Foulk, Jr. qualify as audit committee financial experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) – (c) The following table sets forth the aggregate fees billed by the independent registered public accounting firm Ernst & Young LLP, for the Fund’s last two fiscal years for professional services rendered for: (i) the audit of the Fund’s annual financial statements included in the Fund’s annual report to stockholders; (ii) assurance and related services that are reasonably related to the performance of the audit of the Fund’s financial statements and are not reported under (i), which include advice and education related to accounting and auditing issues and quarterly press release review (for those Funds which issue press releases), and preferred stock maintenance testing (for those Funds that issue preferred stock); and (iii) tax compliance, tax advice and tax return preparation.
Audit Fees | Audit-Related Fees | Tax Fees | ||||||||||||||
-AllianceBernstein Intermediate Bond Portfolio | 2011 | $ | 44,500 | $ | 295 | $ | 12,844 | |||||||||
2012 | $ | 44,500 | $ | 326 | $ | 13,348 | ||||||||||
-AllianceBernstein Bond Inflation Strategy | 2011 | $ | 40,500 | $ | 295 | $ | 12,843 | |||||||||
2012 | $ | 40,500 | $ | 326 | $ | 13,347 | ||||||||||
-AllianceBernstein Municipal Bond Inflation Strategy | 2011 | $ | 31,290 | $ | 295 | $ | 12,466 | |||||||||
2012 | $ | 31,290 | $ | 326 | $ | 12,566 | ||||||||||
-AllianceBernstein Real Asset Strategy | 2011 | $ | 42,000 | $ | 295 | $ | 32,159 | |||||||||
2012 | $ | 42,000 | $ | 326 | $ | 30,332 |
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or after May 6, 2003, the Fund’s Audit Committee policies and procedures require the pre-approval of all audit and non-audit services provided to the Fund by the Fund’s independent
registered public accounting firm. The Fund’s Audit Committee policies and procedures also require pre-approval of all audit and non-audit services provided to the Adviser and Service Affiliates to the extent that these services are directly related to the operations or financial reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in the table under Item 4 (a) – (c) are for services pre-approved by the Fund’s Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to the Fund, the Fund’s Adviser and entities that control, are controlled by or under common control with the Adviser that provide ongoing services to the Fund:
All Fees for Non-Audit Services Provided to the Portfolio, the Adviser and Service Affiliates | Total Amount of Foregoing Column Pre- approved by the Audit Committee (Portion Comprised of Audit Related Fees) (Portion Comprised of Tax Fees) | |||||||||||
-AllianceBernstein Intermediate Bond Portfolio | 2011 | $ | 688,805 | $ $ $ | 13,139 (295 (12,844 | ) ) | ||||||
2012 | $ | 712,440 | $ $ $ | 13,674 (326 (13,348 | ) ) | |||||||
-AllianceBernstein Bond Inflation Strategy | 2011 | $ | 688,804 | $ $ $ | 13,138 (295 (12,843 | ) ) | ||||||
2012 | $ | 712,438 | $ $ $ | 13,673 (326 (13,347 | ) ) | |||||||
-AllianceBernstein Municipal Bond Inflation Strategy | 2011 | $ | 688,427 | $ $ $ | 12,761 (295 (12,466 | ) ) | ||||||
2012 | $ | 711,657 | $ $ $ | 12,892 (326 (12,566 | ) ) | |||||||
-AllianceBernstein Real Asset Strategy | 2011 | $ | 708,120 | $ $ $ | 32,454 (295 (32,159 | ) ) | ||||||
2012 | $ | 729,424 | $ $ $ | 30,658 (326 (30,332 | ) ) |
(h) The Audit Committee of the Fund has considered whether the provision of any non-audit services not pre-approved by the Audit Committee provided by the Fund’s independent registered public accounting firm to the Adviser and Service Affiliates is compatible with maintaining the auditor’s independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the registrant.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3 (c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
12 (a) (1) | Code of Ethics that is subject to the disclosure of Item 2 hereof | |
12 (b) (1) | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (b) (2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (c) | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AllianceBernstein Bond Fund, Inc.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President | ||
Date: | December 21, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President | ||
Date: | December 21, 2012 | |
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer | ||
Date: | December 21, 2012 |